Ferghana Wellspring

BusinessWeek had an article about the proposed Fergana Wellspring "disease" ETFs. I wrote about these last March and was skeptical about them. The BusinessWeek article, without being specific, said they should list soon.

While I remain skeptical I did think of a way where these might make sense, but it will depend on how the ETFs are constructed. This will just be an example as I am no expert on small cap or micro cap biotech stocks and I would think that is what most of the stocks included in these funds would be.

Let's say an investor find a stock that is a big fish in metabolic and endocrine disorders but still an early stage and volatile company. A stock like this could have a big-ish weight in the Metabolic-Endocrine Disorders ETF. By big-ish I mean 15% or so. As I am thinking of this type of stock, bad FDA or efficacy news (or something similar) could crush the stock making owning it as an individual pick less than ideal for some folks. But the ETF could provide exposure without red or black kinds of stakes riding on the stock.

Obviously at this point I do not know how the funds will be made up. For all I know Pfizer could be the biggest weight in every ETF, but I doubt it. We will know soon enough. For now I remain skeptical, this post just isolates one way that they could have some utility but it may not play out as I describe.