The biotech and healthcare space has been on fire lately.
The healthcare space is witnessing a Mergers and Acquisitions wave recently that has achieved an impressive $342 billion in new deal activity so far in 2019. This has resulted in the best year by total deal value since tracking began in the 1990s, according to data provided by Dealogic.
The robust rally was driven by AbbVie’s ABBV proposed $63 billion buyout of Allergan AGN and Amgen’s AMGN $13.4 billion purchase of psoriasis and psoriatic arthritis drug Otezla from Celgene CELG, which is still in the process of being acquired by Bristol-Myers Squibb’s BMY. Rather than look at individual stocks however, investors often turn to ETFs for broader diversification.
For more savvy investors, leveraged ETFs can be used to amplify and sometimes transpose the daily return of an underlying index or asset, usually by a factor of 2 or 3 times the normal return. There are plenty of leveraged ETFs on the market, with varying objectives and degrees of leverage, but these securities have certain risks that investors should be aware of.
Leveraged ETFs use debt and/or derivatives, such as options, to generate double or triple the daily performance of a certain index or asset class. Leveraged ETFs can be either long (bull) or short (bear) ETFs. These are highly leveraged instruments and are typically used by professional investors.
It is worth noting though that while leveraged ETFs certainly have their purpose for short-term investing, for example, utilizing a triple-leveraged ETF as a hedge to protect a short position, long-term investors should be cautious of leveraged ETFs, understanding that things can change quickly, and should be prepared to be proactive.
For investors looking for more rapid gains, and willing to bear the risks, here are 2 Direxion Leveraged 3X ETFs focusing on the biotech stocks:
The Direxion Daily S&P Biotech Bull 3X Shares ETF (LABU)
The Direxion Daily S&P Biotech Bull 3X Shares seek daily investment results, before fees and expenses, of 300% of the performance of the S&P Biotechnology Select Industry Index. There is no guarantee the funds will meet their stated investment objectives.
The S&P Biotechnology Select Industry Index (SPSIBITR) is provided by Standard & Poor’s and includes domestic companies from the biotechnology industry. The Index is designed to measure the performance of the biotechnology sub-industry based on the Global Industry Classification Standards (GICS). One cannot directly invest in an index.
With an expense ratio of a little over 1%, this leveraged ETF seeks a return that is 300% of the return of their benchmark index for a single day. The funds should not be expected to provide three times or negative three times the return of the benchmark’s cumulative return for periods greater than a day.
The Direxion Daily S&P Biotech Bear 3X Shares ETF (LABD)
The Direxion Daily S&P Biotech Bear 3X Shares seek 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. There is no guarantee the funds will meet their stated investment objectives.
The S&P Biotechnology Select Industry Index (SPSIBITR) is provided by Standard & Poor’s and includes domestic companies from the biotechnology industry. The Index is designed to measure the performance of the biotechnology sub-industry based on the Global Industry Classification Standards (GICS). One cannot directly invest in an index.
With an expense ratio of a little over 1%, this leveraged ETF seeks a return that is -300% of the return of their benchmark index for a single day. The funds should not be expected to provide three times or negative three times the return of the benchmark’s cumulative return for periods greater than a day.
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