Biotech HOLDRs (NYSE: BBH) is the oldest biotech ETF and its shares hit a multi-year high of $107.75 today.  That is up more than 25% from the lows of last summer.  Amgen Inc. (NASDAQ: AMGN), Gilead Sciences, Inc. (NASDAQ: GILD), and Biogen Idec Inc. (NASDAQ: BIIB) now equate to right at 85% of the entire Biotech HOLDRs.  Genentech and Genzyme are now not there to counterbalance the ETF with large weightings.

SPDR S&P Biotech ETF (NYSE: XBI) avoids this as it has more companies in the underlying ETF but it too runs the risk that many of the mid-cap constituents are being acquired.  This one has not hit a year-high today, but its shares are up more than 35% from the lows of last summer.

First Trust NYSE Arca Biotechnology Index Fund (NYSE: FBT) has a more diversified holdings base as well, but its weighting is over 6% in Celera Corporation (NYSE: CRA) (already in a deal) and just under 6% in Cephalon Inc. (NASDAQ: CEPH) with a status pending on whether or it stays independent or merges.  Soo far it has yet to take out a 52-week high but even by a closer margin than the “XBI” above.  This one is up nearly 40% from the lows of last summer.

iShares NASDAQ Biotechnology (NASDAQ: IBB) also came well within 1% of a 52-week high yet again today, with its shares up about 35% of last summer’s lows.  If you are looking for a biotech ETF with the least disruptive impact by the M&A waves in the sector this one (at least currently) appears to be the least dented by M&A.  That may change but that is noted solely ‘just in case.’

Obviously not every single biotech will be acquired.  That is not the point.  What is important to watch is how the continued trend of mergers is changing the weighting of each of these ETFs.  If these weightings change too much it can impact how each of these trade.

JON C. OGG

These new securities will not be a true IPO but the value of these will possibly fluctuate wildly around news compared to how Genzyme shares used to trade on their own.  Sanofi-Aventis has commenced its exchange offer for Genzyme shares for $74.00 cash and one CVR per share.

The CVRs give former Genzyme holders and new CVR buyers the right to receive additional cash payments if specified milestones related to Lemtrada are achieved over time or a milestone related to production volumes in 2011 for Cerezyme and Fabrazyme is achieved.

Upon closing of the exchange offer, the CVRs will be listed on the Nasdaq market under the ticker symbol “GCVRZ”.  These will trade in short order as the exchange offer to acquire Genzyme currently expires at 11:59 p.m., New York City time, on April 1, 2011.

Genzyme used to trade with tracking stocks before the company reacquired the entities.  Now Genzyme is being acquired by Sanofi-Aventis.  Determining the ultimate value of each CVR will be no easy task, but the value around NOON EST today would have been about $2.03 per CVR if you deduct $74.00 from $76.03.

The Genzyme acquisition is going to have some reallocation ramifications in biotech indexes and ETFs.  The Biotech HOLDRS (NYSE: BBH) have Genzyme as being 10.16% of its fund holdings. iShares Nasdaq Biotechnology (NASDAQ: IBB) has only a 3.24% weighting and First Trust NYSE Arca Biotechnology Index Fund (NYSE: FBT) has a 5.22% weighting for Genzyme.

Investors will still get to trade Genzyme via a new security, but these are not shares.  They are rights, and the ultimate value could be as mush as $14.00 per share through time if all hurdles are met or exceeded.

JON C. OGG

ETF WINNERS JUNE 4, 2007:
Oil Services HOLDRs (OIH)                                             $174.35; +2.7%
PowerShares DB Base Metals (DBB)                            $27.66; +2.6%
iShares Dow Jones US Home Construction (ITB)       $37.29; +1.6%
Ultra Russell2000 Value ProShares (UVT)                   $72.18; +1.28%
SPDR S&P World ex-US (GWL)                                       $33.65; +1.25%
Ultra Real Estate ProShares (URE)                                $62.52; +1.23%

ETF LOSERS JUNE 4, 2007:
UltraShort Oil & Gas ProShares (DUG)                         $48.90; -2.4%
iShares MSCI South Africa Index    (EZA)                       $128.25; -1.6%
HealthShares Cancer (HHK)                                            $29.25; -1.05%
First Trust AMEX Biotech Index (FBT)                              $25.52; -1.05%
iPath MSCI India Index ETN (INP)                                    $60.54; -1.03%
iShares MSCI Brazil Index (EWZ)                                     $60.65; -0.90%

DJIA                        13,676.32; +8.21 (0.06%)
NASDAQ                2,618.29; +4.37 (0.17%)
S&P500                 1,539.18; +2.84 (0.18%)
10YR Bond            4.9290%; -0.0270%
NYSE Volume       2,713,846,000
NASDAQ Volume  1,947,730,000   

If you can believe it, the PowerShares Golden Dragon-China (PGJ) only fell 0.04% on 278,000 shares, not bad for a day that Shanghai fell 8%.  Even the closed-end fund The China Fund Inc. (CHN) only saw a 0.33% drop.

Please note that is you see other winning or losing ETF’s that are the same category as one of the winners and losers that is not in here, it is because we try to default to the most liquid ETF that is means to track any given sector.

Today the main winners were led by oil & gas trackers in various segments in the oil patch: United States Natural Gas (UNG) 3.7%, iShares Dow Jones US Oil & Gas Ex Index (IEO) 2.5%, Ultra Oil & Gas ProShares (DIG) 2.45%, iShares Dow Jones US Oil Equipment Index  (IEZ) 2.35%, SPDR S&P Oil & Gas Equipment & Services (XES), SPDR S&P Oil & Gas Exploration & Prod (XOP) 2.2%, Energy Select Sector SPDR (XLE) 1.5%.

After seeing how many oil and energy ETF’s are on the market we would formally like to ask ETF managers not to open up any more oil and gas variations of ETF’s.

Jon C. Ogg
June 4, 2007