Biotech Went to the Bears in Second Half of 2021

LABD climbed almost 21% in the second half of 2021, giving bearish biotech traders something to cheer about. Of course, it helps to have leverage with LABD seeking daily investment results, before fees and expenses, that equal to 300% of the inverse of the daily performance of the S&P Biotechnology Select Industry Index.

The fund, under normal circumstances, invests in swap agreements, futures contracts, short positions, or other financial instruments that, in combination, provide inverse (opposite) or short leveraged exposure to the index equal to at least 80% of the fund’s net assets (plus borrowing for investment purposes). The index is designed to measure the performance of the biotechnology sub-industry based on the Global Industry Classification Standards (GICS).

“The Nasdaq Biotechnology Index has fallen flat in 2021, underperforming returns for the S&P 500 benchmark by more than 25 percentage points — that is the third-widest gap since its inception in the early-1990s, data compiled by Bloomberg show,” a Bloomberg article notes. “The equal-weighted SPDR S&P Biotech ETF (XBI), a fund specialists use to track the industry’s performance, is on pace for its worst year ever down 22%.”

Bulls aren’t completely out of the picture when it comes to biotech. According to RBC Capital Markets analyst Brian Abrahams, “the pendulum has swung too far.” Cash-rich biotech companies with upcoming clinical and regulatory catalysts could sway biotech towards bullish momentum.

If that’s the case, then traders can look into the Direxion Daily S&P Biotech Bull 3x Shares (LABU C+). The fund takes the opposite side of LABD, seeking 300% of the daily performance of the S&P Biotechnology Select Industry Index.

“Another potential windfall could come for investors should cash-rich large-cap companies embark in an aggressive buying spree,” the Bloomberg article notes. “Earlier this month, SVB Leerink’s Geoffrey Porges estimated that total potential cash and debt capacity for the biopharma industry may top $1.6 trillion by the end of 2022, with eight companies having potential for over $100 billion in dry powder.”

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