Not that it went it anywhere, but the Direxion Daily S&P Biotech Bull 3X Shares (LABU) has come roaring back with vengeance this month. LABU, the triple-leveraged answer to the SPDR S&P Biotech ETF (XBI), entered Monday with a month-to-date gain of almost 34 percent.
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After surging 4.3 percent on heavy volume Monday, LABU is the second-best performer among Direxion's leveraged bullish ETFs this month with a gain of over 38 percent. That is an impressive run for an ETF that at one point earlier this month was sporting a year-to-date loss of about 67 percent and was reverse split earlier this year.
LABU's recent resurgence and those experienced by other biotech ETFs, leveraged or otherwise, are made all the more impressive when considering this is an election year. An election year in which it looks like a candidate hostile toward the biotech space could easily wind up in the White House.
Macro factors, including politics, have brought stocks down across the board. And even as the latest rally has helped take back some losses, biotech traders may be more wary of political backlash than others. Election year posturing over drug prices is worrying money managers who remember Hilary Clintons vow to take on price gouging by drug companies back in September. If Clinton makes her way to the White House and implements more regulation on drug pricing, traders know that biotech companies may underperform, said Direxion in a recent note.
In terms of volatility, which XBI and LABU offer plenty of, investors should realize that comes by way of the fact that XBI is an equal-weight ETF so it is not dominated by the largest biotech stocks. Rather, XBI's 90 holdings have a weighted average market value of $14.3 billion, making XBI and LABU plays on mid- and small-cap biotech stocks.
In fact, for the 30 days ended April 15, LABU's variance against its underlying index was nearly 4.2 percent, the highest among Direxion's leveraged bullish ETFs. In this case, that is not a bad thing, but it underscores the volatility that comes along with an instrument like LABU.
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Traders do not seem to mind. Over the same 30-day stretch, LABU averaged daily inflows of nearly $1.8 million, according to issuer data.
But many traders are starting to nibble on biotech again. After all, the time to buy is usually when a stock or entire sector- falls out of favor. And in fact, a recent bounce back for the sector may indicate that this may be the start of a longer run. The massive sell-off that caused shares of some of the most promising biotech stocks to drop, has created a buying opportunity. Since its February low, the sector has climbed for almost 8 weeks, adds Direxion.
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