Biotech Has Been in a Steady Uptrend Even Through Covid-19

It’s been a memorable, if not unusual, summer of 2020, but it’s not stopping biotech bulls from charging forward. The sector has been on a steady uptrend despite the economic effects of Covid-19.

“Summertime is typically regarded as a notoriously choppy month for markets as volume tends to dissipate,” a Direxion Investments’ Xchange article noted. “But 2020 is obviously a year of altered expectations. While volatility still permeates the broad market, one segment has seen a fairly consistent upward trend through the bulk of the year. That segment is, of course, biotech, with research labs and pharmaceuticals under close scrutiny from investors eager to capitalize on any headway in the public health battle that is raging in countries across the globe.”

What exactly are the tailwinds behind biotech?

“The industry’s strength can be attributed to a mix of the broad market’s strong bounce following the March sell-off, as well as a steady drip-feed of information regarding clinical trials in the race to discover a vaccine for COVID-19. The sum total of this combination for the index and LABU is that both are comfortably at 52-week highs,” the article added. “One of the unique aspects of this public health crisis is the breadth of efforts to help solve it. While the largest drugmakers in the world—like Merck, Pfizer, Gilead, and Johnson & Johnson—are involved, there are also a number of smaller companies who have risen to the challenge.”

^NBI Chart

^NBI data by YCharts

Biotech Bullishness Ahead?

Traders sensing more bullishness in biotech can use leveraged funds like Direxion Daily S&P Biotech Bull 3X ETF (NYSEArca: LABU). LABU seeks daily investment results that are equal to 300% of the daily performance of the S&P Biotechnology Select Industry Index with the majority of its allocations going towards securities of the index and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index. Furthermore, the index is designed to measure the performance of the biotechnology sub-industry based on the Global Industry Classification Standards.

For investors looking for a non-leveraged option in biotech, there’s the iShares Nasdaq Biotechnology ETF (IBB). IBB seeks to track the investment results of the NASDAQ Biotechnology Index, which contains securities of companies listed on NASDAQ that are classified according to the Industry Classification Benchmark as either biotechnology or pharmaceuticals and that also meet other eligibility criteria determined by Nasdaq, Inc.

The fund generally invests at least 90% of its assets in securities of the index and in depositary receipts representing securities of the index. It may invest the remainder of its assets in certain futures, options and swap contracts, cash and cash equivalents.

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