Biotech Bounces in August as M&A Activity Increases | ETF Trends

The biotech sector deflated, as most sectors did, in the first half of 2022. However, the sector is in the midst of a comeback as mergers and acquisitions rise, signaling increased activity.

The biotech sector wasn’t immune to inflation fears to start 2022. While the sector has been making a comeback in recent months, the S&P 500 Biotechnology Sector Index is still down 20% for the year, so the index still has a long way to go in order to get back in the green.

But, as mentioned, things are looking better for the sector with the aforementioned index up close to 30% over the last few months. In addition to mergers and acquisitions activity, other positive data is signaling a biotech comeback.

“Asset sales, cash distributions, reverse mergers, M&A and several positive datasets have helped lift Biotech off of once unfathomably low levels and back towards respectability despite still being off close to 30% YTD,” Oppenheimer healthcare equity strategist Jared Holz wrote in note, per a Barron’s article.

2 Options for Strength or Weakness in Biotech

The beauty of opposing exchange traded funds (ETFs) that offer a bullish and bearish side is that they can allow for more flexibility. In sectors like the biotech industry, traders can use inverse funds to trade of their sense of bearishness and likewise with bullishness if they sense any forthcoming upside.

Additionally, if traders feel strongly about the direction of the sector, they can get amplified exposure with leveraged funds. In the case of the biotech sector, traders can play off a sense of bullishness with the Direxion Daily S&P Biotech Bull 3x Shares (LABU).

LABU seeks daily investment results of 300% of the daily performance of the S&P Biotechnology Select Industry Index. The fund invests at least 80% of its net assets (plus borrowing for investment purposes) in financial instruments and securities of the index, ETFs that track the index, and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index.

Conversely, if traders get bearish vibes, they can take the opposite direction. As such, there’s the Direxion Daily S&P Biotech Bear 3X Shares (LABD) available to get strategic exposure, such as hedging a separate position or as a sole position when conviction is high.

For more news, information, and strategy, visit the Leveraged & Inverse Channel.