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With Earnings On Tap, A Stir In This Leveraged Pharmaceuticals ETF

ETF Professor

With pharmaceuticals stocks under intense political scrutiny this year, the Dynamic Pharmaceutical Intellidex Index (DZRTR) is lower by nearly 8% and is on pace for one of its worst annual performances in several years.

What Happened

Predictably, the Direxion Daily Pharmaceutical & Medical Bull 3X Shares (NYSE: PILL), the leveraged exchange-traded fund tied to that index, is faring much worse than that benchmark. PILL, which attempts to deliver triple the daily returns of the Dynamic Pharmaceutical Intellidex Index, is lower by nearly 14% just this month.

The Dynamic Pharmaceutical Intellidex Index is not a cap-weighted index. Rather the benchmark identifies stocks based on factors such as price momentum, earnings momentum, quality, management action, and value.

Still, the benchmark is home to familiar pharmaceuticals names such as Abbott Labs (NYSE: ABT) and Dow components Pfizer Inc. (NYSE: PFE) and Johnson & Johnson (NYSE: JNJ).

Why It's Important

While PILL is struggling this year, this could be the time for the leveraged pharmaceuticals ETF to get its act together. Over the next three weeks, nearly 90% of the fund's underlying index reports earnings, providing traders with plenty of catalysts to trade PILL around.

Nearly 19% of the Dynamic Pharmaceutical Intellidex Index delivers earnings updates this week and there are plenty of questions for both blue-chip and growth biopharma names to answer for investors.

View more earnings on PILL

“Broad challenges, such as the pronounced role drug pricing will play in the 2020 election cycle, will likely take up time on many of the corporate calls,” reports BioPharmaDive. “But investors will also home in on company-specific issues.”

Data indicate some traders are betting on PILL into earnings. Last week, PILL saw inflows of $2.44 million, according to Direxion data. While not a massive sum, it was still good for almost 26% of PILL's assets, putting the fund in the higher tier of Direxion's leveraged ETFs for new money added as a percentage of total assets for the 10 days ended July 19.

What's Next

The next three weeks likely represent do or die time for pharmaceuticals stocks and PILL. No pressure, but the healthcare sector's ability to shed its 2019 laggard status could be determined over the next few weeks.

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