The Biotech HOLDR (BBH, $141.50) is an exchange-traded fund that consists of a basket of 18 Biotechnology firms. You could really call this the "Am-Genentech Fund," as Biotech giants Amgen (AMGN, $64.86) and Genentech (DNA, $96.52) account for nearly 60% of this HOLDR's value. So, when you invest in this fund, you truly need to have a technical view of these two securities and should certainly know when they are going to release earnings, announce major drug development decisions from the FDA, or are involved in important Biotech conferences. These kinds of events can lead to huge moves in Biotech stocks. It does not hurt to know if and when their competition is working on alternate drugs as well, although knowledge of the companies' charts and a background in their own events will give you the requisite information.

Note that I listed the Pharmaceutical HOLDR (PPH, $83.84) as a related issue in the table below. However, the correlation between PPH and BBH is fairly low, at about 58%. This makes sense. PPH mostly holds developed companies that have steady returns. By contrast, most biotech firms are highly specialized and are still in the developmental stage. They are very speculative. While pharmaceutical firms in PPH are sometimes considered defensive in nature, most stocks in BBH would not even come close to falling into that category. From high to low, BBH tumbled -71% during the bear market. Although the fund then bottomed well before the broader market (July 2002 compared with October 2002), I would not categorize BBH as defensive.

A quick note about HOLDRS...
HOLDRS, which are managed by brokerage giant Merrill Lynch, are a bit different from traditional ETFs in the way they trade and in their expense ratios. For example, you cannot buy or sell fewer than 100 shares of a HOLDR in any transaction. Instead, these unique instruments can only be traded in 100-share round lots. In addition, unlike most other types of funds, which track broad-based indices that contain hundreds (or some cases even thousands) of stocks, most HOLDRS consist of just a handful of stocks and are designed to track a particular industry group. Because they only track a few companies, HOLDRS are very inexpensive to manage. However, because they aren't highly diversified, they also tend to be much more volatile than the average ETF. HOLDRS also directly pass through any distributions the underlying securities make. This may lead to tax consequences different than what you would expect from an ordinary ETF. Note that because the fund's components never change, corporate restructurings and changes could ultimately result in a HOLDR no longer being representative of its original sector design. After purchasing a HOLDR, you will receive annual and quarterly reports from each individual company held by the fund.

HOW TO MAKE MONEY IN BBH THIS YEAR
Although I still see a chance at one more new high in the broad stock market, BBH may very well have already peaked. This fund has more than doubled in the past 18 months and is now due for a large fall, so long-term traders should hold short positions here. My minimum downside target is near $114, but the fund could even fall as low as $105, and perhaps even $96, sometime within the next year. I would stay short as long as the fund does not rally past $162.

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