The Direxion Daily S&P Biotech Bull 3X Shares (NYSEARCA: LABU) and Direxion Daily S&P Biotech Bear 3X Shares (NYSEARCA: LABD) ETFs have their place in a trading strategy. They can even be used as very temporary props to an investment strategy. But the one thing they absolutely should not be is a long term part of an investment strategy - for over time they are guaranteed money losers.
To explain by way of a joke. Rod is a canned herring supplier. His friend, Jeremy, is a canned herring retailer. So, “Rod, those herrings you sent me. Wife and I tried some, they were terrible!” “Jeremy, son, those herrings were for trading, not for eating”. The Direxion 3X ETFs are for trading, not for eating - or investing as we might put it.
LABU provides three times leverage on exposure to the S&P Biotech index on the bull side. LABD provides 3x exposure to the same index on the bear side. But the thing to know is that by construction they are expensive. Further, they reset every day. This means that you'll have a percent or so loss each day - approximately - by holding them long term. What they're to be used for is either speculating or hedging in an intraday trade. For that they're fine is the S&P Biotech is something you want to sp[eculate upon or hedge against during a day.
We can also see this from the charts:
LABU stock price from NASDAQ
LABD stock price from NASDAQAs we can see those prices move as mirrors of each other. Which is exactly what we want them to do. But they only move as mirrors on a daily basis. They do not do so over time. We can check this. Over the past 12 months LABU is up 3.77%. Over the past 12 months LABD is down by 73%. That is not the mirror of each other. And the difference between those two numbers is the loss baked into holding, over time, a leveraged ETF.
Leveraged ETFs are for day trading. If you want leverage on an index position then better to be in an unleveraged ETF and then gain your leverage elsewhere. Maybe from your broker, possibly with a contracts for difference broker. The real point here being that different instruments are constructed for different purposes. Make sure you're using the right one for your aim and purpose.