LABU: Direxion Daily S&P Biotech Bull 3X ETF

The Direxion Daily S&P Biotech Bull 3X Fund (NYSEARCA: LABU) is an exchange traded fund (ETF) that seeks to replicate 300% of the daily performance (before fees and expenses) of its underlying index, the S&P Biotechnology Select Industry Index. LABU seeks daily leveraged investment results and is intended as a short-term trading vehicle, not a long-term investment holding. You should not expect the fund to provide three times the return of the benchmark’s cumulative return for periods greater than a day.

Key Takeaways

• The Direxion Daily S&P Biotech Bull 3X Fund (LABU) is an ETF that seeks to replicate 300% of the daily performance of its benchmark, the S&P Biotechnology Select Industry Index.
• The fund invests primarily in swap agreements and futures contracts that provide daily leveraged exposure to the benchmark index.
• LABU represents an opportunity for short-term speculation on U.S. biotechnology stocks.
• It is a daily leveraged ETF and should not be held for even moderate periods of time due to its high market volatility and leverage risks.
• Other fund risks include compounding risk, derivatives risk, counterparty risk, intra-day investment risk, rebalancing risk, and healthcare sector risk.

Understanding Direxion Daily S&P Biotech Bull 3X Fund (LABU)

The word “bull” in the title indicates that the fund is meant to appreciate when the underlying index performs well. Direxion does have an inverse sister fund for LABU: The Direxion Daily S&P Biotech Bear 3X Shares ETF (LABD).

Unlike a traditional ETF, LABU is not a collection of holdings designed to mirror an index. Instead, this fund is a daily 3x leveraged bet on the performance of the S&P Biotechnology Select Industry Index (SPSIBITR). This is accomplished primarily through exposure to swap agreements and futures contracts that provide daily leveraged exposure to the index.

The underlying index is spread out over 134 different equity securities in the biotechnology and healthcare sectors. As of January 2025, the smallest weight was in Monte Rosa Therpeutics.

LABU Characteristics

LABU was released to the public on May 28, 2015, and many viewed it as a direct challenge to the ProShares Ultra NASDAQ Biotechnology ETF (BIB).

The net expense ratio for LABU is 0.96%. However, administrative fees do not really matter much for daily traded funds because an investor is exposed to them for so short a period of time. Trading fees and other account expenses are much more important for this ETF. These fees occur independently from the investment and vary depending on platform and brokerage.

The ETF has net assets of $799.77 million. The fund invests at least 80% of its net assets in financial instruments that track the underlying index. As of Sept. 30, 2021, the index top five holdings are Neurocrine Biosciences, Abbvie Shares, Gilead Sciences, Biomarin Pharmaceutical, and Utd Therapeut.

$546 billion

The projected size of the biotechnology industry market.

Other LABU Considerations

Any funds that pursue daily leverage are riskier than alternatives without leverage. Leveraged ETFs magnify the gains and losses of their underlying indexes. If the S&P Biotechnology Select Industry Index suffers losses of 10% over the course of one trading day, an investor holding LABU is liable to lose up to 30% or more.

As an extreme case, it is possible for an investor to lose all of their money if the underlying index moves more than 33% on a given trading day. Also, daily leveraged ETFs are ill-suited for long holding periods. The return for LABU will suffer time decay; the day-to-day volatility in the fund’s returns often mitigate its leveraged design.

The Direxion prospectus for LABU lists various other risks investors should be aware of when considering an investment in the ETF. These include the effects of market volatility and compounding, derivatives risk, counterparty risk, intra-day investment risk, rebalancing risk, and healthcare sector risk.

Ideal Investors in LABU

LABU is probably best suited for traders with a high risk tolerance seeking short-term exposure to biotech equities. As a 3x leveraged ETF, LABU is best used for intraday or short-term momentum trading rather than long-term holding due to the compounding effects of daily rebalancing. Active traders may use LABU to capitalize on price swings driven by FDA approvals, earnings reports, or macroeconomic trends affecting biotech valuations.

Institutional investors and hedge funds may incorporate LABU into tactical allocation strategies. For instance, this could be useful in a bullish market environment or when positioning for anticipated sector-wide catalysts such as something like a regulatory shift. LABU may also serve as a short-term hedging tool within a broader portfolio.

Experienced retail investors with sector-specific expertise may use LABU for short-term speculation, particularly those who track clinical trial results, biotech M&A activity, or index momentum. However, due to decay from daily rebalancing, LABU is not usually used by passive investors or those without strict risk management protocols.

What Is the Direxion Daily S&P Biotech Bull 3X ETF?

LABU is a leveraged ETF designed to provide investors with 300% of the daily performance of the S&P Biotechnology Select Industry Index. This means that for each 1% increase in the index on a given day, LABU aims to increase by approximately 3%, before fees and expenses. Conversely, if the index decreases by 1%, LABU is designed to decrease by about 3%.

How Does LABU Achieve Its 3X Leverage?

To achieve its triple leverage, LABU primarily invests in financial instruments such as swap agreements and futures contracts that provide daily exposure to the S&P Biotechnology Select Industry Index. These derivatives allow the fund to amplify the daily movements of the underlying index.

What Is the Underlying Index of LABU?

LABU tracks the S&P Biotechnology Select Industry Index.

How Does LABU Compare to Similar ETFs?

LABU could be compared to the ProShares Ultra Nasdaq Biotechnology ETF (BIB), However, BIB seeks to replicate only twice (not 3x) the daily performance of the Nasdaq Biotechnology Index,

The Bottom Line

LABU is designed for and best used by sophisticated investors. Interested buyers should understand the risks of using leverage and the consequences of daily leveraging, and they should be comfortable in a daily monitoring capacity for their investments.

This ETF represents an opportunity for short-term speculation on biotechnology stocks in the United States. It should not be held for even moderate periods of time, and it cannot reasonably form part of a core or satellite portfolio.