Editor's note: Any and all references to time frames longer than one trading day are for purposes of market context only, and not recommendations of any holding time frame. Daily rebalancing ETFs are not meant to be held unmonitored for long periods. If you don't have the resources, time or inclination to constantly monitor and manage your positions, leveraged and inverse ETFs are not for you.
Biotech Revival or Just Another Shot in the Arm?
The biotech sector has seen some initial signs of recovery after spending the past couple years struggling with high interest rates and a post-covid healthcare fallout. Now that life-changing drugs are coming down the pipeline, along with a more favorable interest rate environment, can the sector finally make a comeback?
Can Bulls Overcome Economic Pressures?
Going into 2025, the biotech industry is seeing a massive surge of innovation, with notable clinical trials and breakthroughs in areas like gene therapy and weight loss drugs. If these developments continue to show positive results and receive favorable regulatory approval, they could significantly improve the sector’s prospects.
In this situation, Direxion’s Daily S&P Biotech Bull 3X Shares (Ticker: LABU) could see a nice bid. This ETF seeks daily investment results, before fees and expenses, of 300% of the performance of the S&P Biotechnology Select Industry Index*.
Traders should closely monitor earnings reports in names like United Therapeutics (Ticker: UTHR), Incyte (Ticker: INCY), and Exact Sciences (Ticker: EXAS). Both UTHR and INCY recently reported their earnings with a positive market response, but EXAS stock tumbled after the company cut its outlook and posted weaker-than-expected results.
Below is a daily chart of LABU as of November 1, 2024.
Source: TradingView.com
Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.
The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. For the most recent month-end performance go to Direxion.com/etfs. For standardized performance click here.
Is Biotech That Sensitive to Interest Rates?
One significant risk to the biotech sector is the potential for an economic slowdown, which could impact research and development monies and overall demand for biopharmaceuticals. Even though the latest gross domestic product (GDP)* numbers have exceeded expectations, concerns about inflation and interest rates could still cause problems. If consumers and healthcare providers shore up spending, it may lead to reduced demand for new therapies and treatments.
Not to mention, competition in the biotech sector has only increased, with numerous companies looking to capture market share in various therapeutic areas. If innovation slows or key products fail to reach the market or obtain regulatory approval, it could slow growth prospects for the entire sector.
For biotech bears, Direxion’s Daily S&P Biotech Bear 3X Shares (Ticker: LABD), which seeks daily investment results, before fees and expenses, of 300% of the inverse (or opposite) of the performance of the S&P Biotechnology Select Industry Index, could provide a nice opportunity.
Below is a daily chart of LABD as of November 1, 2024.
Source: TradingView.com
Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open.
The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. For the most recent month-end performance go to Direxion.com/etfs. For standardized performance click here.
Additional Healthcare and Tech Plays
Traders seeking other leveraged, concentrated bets related to healthcare may find a position in the Direxion Daily Healthcare Bull 3X Shares (Ticker: CURE) or the Direxion Daily Pharmaceutical & Medical Bull 3X Shares (Ticker: PILL). CURE seeks daily investment results, before fees and expenses, of 300% of the performance in the Healthcare Select Sector Index*, while PILL seeks daily investment results, before fees and expenses, of 300% of the performance in the S&P Pharmaceuticals Select Industry Index*.
Traders looking to play the tech sector may consider the Direxion Daily Technology Bull 3X Shares (Ticker: TECL) or the Direxion Daily Technology Bear 3X Shares (Ticker: TECS), which seek daily investment results, before fees and expenses, of the 300%, or -300% respectively, of the performance of the Technology Select Sector Index*.
*Definitions and Index Descriptions
An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.
Leveraged and Inverse ETFs pursue daily leveraged investment objectives which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying index over periods longer than one day. They are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk and who actively manage their investments.
The "S&P Biotechnology Select Industry Index" is a product of S&P Dow Jones Indices LLC ("SPDJI"), and has been licensed for use by Rafferty Asset Management, LLC ("Rafferty"). Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC ("S&P"); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC ("Dow Jones"); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Rafferty. Rafferty’s ETFs are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P Biotechnology Select Industry Index.
The S&P Biotechnology Select Industry Index (SPSIBITR) is provided by S&P Dow Jones Indices LLC and includes domestic companies from the biotechnology industry. The Index is a modified equal-weighted index that is designed to measure the performance of the biotechnology sub-industry based on the Global Industry Classification Standards (GICS).
The Health Care Select Sector Index (IXVTR) is provided by S&P Dow Jones Indices LLC and includes domestic companies from the healthcare sector, which includes the following industries: pharmaceuticals; health care equipment and supplies; health care providers and services; biotechnology; life sciences tools and services; and health care technology.
The S&P Pharmaceuticals Select Industry Index (SPSIPHTR) is a modified equal-weighted index that is designed to measure performance of the stocks comprising the S&P Total Market Index that are classified in the Global Industry Classification Standard (GICS) pharmaceuticals sub-industry.
The Technology Select Sector Index (IXTTR) is provided by S&P Dow Jones Indices and includes domestic companies from the technology sector which includes the following industries: computers and peripherals; software; diversified telecommunications services; communications equipment; semiconductors and semi-conductor equipment; internet software and services; IT services; electronic equipment, instruments and components; wireless telecommunication services; and office electronics.
One cannot directly invest in an index.
Direxion Shares Risks – An investment in a Fund involves risk, including the possible loss of principal. A Fund is non-diversified and includes risks associated with the Fund’s concentrating its investments in a particular industry, sector, or geography which can increase volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause prices to fluctuate over time.
Leverage Risk – Each Fund obtains investment exposure in excess of its net assets by utilizing leverage and may lose more money in market conditions that are adverse to its investment objective than a fund that does not utilize leverage. A total loss may occur in a single day. Leverage will also have the effect of magnifying any differences in the Fund’s correlation or inverse correlation with the Index and may increase the volatility of the Fund.
Daily Index Correlation Risk – A number of factors may affect the Bull Fund’s ability to achieve a high degree of correlation with the Index and therefore achieve its daily leveraged investment objective. The Bull Fund’s exposure to the Index is impacted by the Index’s movement. Because of this, it is unlikely that the Bull Fund will be perfectly exposed to the Index at the end of each day. The possibility of the Bull Fund being materially over- or under-exposed to the Index increases on days when the Index is volatile near the close of the trading day.
Daily Inverse Index Correlation Risk – A number of factors may affect the Bear Fund’s ability to achieve a high degree of inverse correlation with the Index and therefore achieve its daily inverse leveraged investment objective. The Bear Fund’s exposure to the Index is impacted by the Index’s movement. Because of this, it is unlikely that the Bear Fund will be perfectly exposed to the Index at the end of each day. The possibility of the Bear Fund being materially over- or under-exposed to the Index increases on days when the Index is volatile near the close of the trading day.
Biotechnology Industry Risk – Companies within the biotechnology industry are subject to the risks of heavy investment in research and development to varying degrees of success, rapid obsolescence, significant governmental regulation and changes to governmental policies or the need for regulatory approvals, which may delay or inhibit the release of new products.
Healthcare Sector Risk — Companies in the healthcare sector may be affected by extensive, costly and uncertain government regulation, rising costs of medical products and services, changes in the demand for medical products and services, an increased emphasis on outpatient services, limited product lines, industry innovation and/or consolidation, changes in technologies and other market developments.
Additional risks of each Fund include Effects of Compounding and Market Volatility Risk, Market Risk, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Other Investment Companies (including ETFs Risk), Cash Transaction Risk, Passive Investment and Index Performance Risk and for the Direxion Daily S&P Biotech Bear 3X Shares, Shorting or Inverse Risk. Please see the summary and full prospectuses for a more complete description of these and other risks of a Fund.