Cure The Summer Doldrums With Leveraged Biotech ETFs

The summer months can be a lethargic period for equities. While that scenario can lead some investors to flock to defensive sectors, there are some seasonal surprises that active, risk-tolerant traders can take advantage. That includes some opportunity with the biotechnology space and the corresponding exchange traded funds.

Traders looking to add some upside at a potentially sluggish time of year can consider leveraged biotechnology exchange traded funds including the Direxion Daily S&P Biotech Bull 3X Shares LABU.

Like other leveraged ETFs, LABU is best used as a short-term trade. When the going is good LABU, over a few days, it can be a very rewarding trade, but as the biotechnology sector taught investors earlier this year, things can turn bad in a hurry and LABU can rapidly become a punishing trade.

LABU attempts to deliver triple the daily returns of the S&P Biotechnology Select Industry Index.

“In the past, Biotech has stayed positive during the summer months and have outperformed the S&P 500,” said Direxon in a note. “This is again somewhat surprising, as many people think of summer as a risk-off time when in fact it is a good time to stay invested in Biotechnology stocks historically.  The sector has done well since the election despite Donald Trump’s considerable rhetoric talking down drug prices. It jumped massively the day after the election, as many thought Hillary Clinton would have been tougher on drug companies.  Recently the index has given some back.”

The biotech sector typically falls in June and rises modestly in July before falling in August, making for an average June through August decline of 0.18 percent, according to Direxion.

“The more general health care sector has been the most challenged sector since Donald Trump’s presidential campaign, as it has been a significant topic of discussion,” said Direxion. “Fear arose from Trump’s administrative plans to revive the health care sector, as his first executive order after being sworn in as president was to take prompt action to repeal the Affordable Care Act (or ACA). These actions could affect hospital stocks adversely while benefiting life science companies and pharmaceuticals.”