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A Lazarus Act For This Pharma ETF

by
November 29, 2017 5:03 pm
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When Exchange-Traded Funds close, the vast majority are never heard from again. Every once in a while, an ETF issuer will bring back to life a previously shuttered product.

That is the case with the Direxion Daily Pharmaceutical Bull 3X Shares (NYSE:PILL), which was reborn earlier this month. Direxion, the second-largest issuer of inverse and leveraged ETFs, closed PILL earlier this year. As its name implies, the new version of PILL is triple leveraged. Before it was closed in March, PILL was a double-leveraged ETF.

PILL is designed to deliver triple the daily returns of the Dynamic Pharmaceutical Intellidex Index. That index “provides exposure to 30 U.S pharmaceutical companies principally engaged in the research, development, manufacture, sale or distribution of pharmaceuticals and drugs of all types,” according to a statement from Direxion

A Unique Index

PILL's underlying index is not cap-weighted as are most pharmaceuticals benchmarks. Rather, the Dynamic Pharmaceutical Intellidex Index evaluates companies based on price momentum, earnings momentum, quality, management action, and value.

"The pharmaceutical sector is continuously evolving, with research and development leading to new product innovation and availability," said Sylvia Jablonski, Managing Director at Direxion, in the statement. "The launch of PILL is timely, allowing traders to magnify their short-term bullish perspective on the popular sector."

AbbVie Inc. (NYSE:ABBV), Pfizer Inc. (NYSE:PFE), Bristol-Meyers Squibb Co. (NYSE:BMY) and Johnson & Johnson (NYSE:JNJ) combine for over 22 percent of PILL's underlying index.

Usual Warnings

As is the case with any leveraged ETF, PILL should only be used by sophisticated, risk-tolerant traders that can quickly enter and exit positions. No leveraged ETF, including PILL, should be deployed as a long-term investment vehicle.

“Like all leveraged ETFs, this Direxion product is intended only for investors with an in-depth understanding of the risks associated with seeking leveraged investment results, and who plan to actively monitor and manage their positions,” according to Direxion. “There is no guarantee that this Fund will meet its objective.”

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