Pharmaceutical exchange-traded funds (ETFs) offer investors access to a basket of U.S.-based and foreign stocks of drug manufacturers and related companies in a single investment. These companies discover, develop, and produce medications used to cure disease, vaccinate, or alleviate symptoms of illness. Pharmaceutical stocks include Pfizer Inc. (PFE) and Merck & Co. Inc. (MRK), two major drug companies, as well as biotech firms and smaller, fast-growing names.
Pharmaceutical ETFs allow investors to share in the profits earned across the sector while avoiding the idiosyncratic risks of investing in individual stocks. A select number of pharmaceutical stocks have attracted heightened interest from investors due to the COVID-19 pandemic. These companies have developed government-approved vaccines to protect against the virus, while others are racing to develop new vaccines or related products.
On Jan. 31, 2022, the U.S. Food and Drug Administration (FDA) fully approved Moderna Inc.’s (MRNA) vaccine for the prevention of COVID-19 in individuals 18 years of age or older. The vaccine, which has been available under emergency use authorization (EUA) since December 2020, is now being marketed as Spikevax. It was the second COVID-19 vaccine to gain full approval from the FDA after the vaccine co-developed by Pfizer and BioNTech SE (BNTX), marketed as Comirnaty, was approved in August 2021. In May 2022, the FDA placed limits on the COVID-19 vaccine created by Johnson & Johnson (JNJ), citing safety concerns related to a rare blood-clotting condition. On Aug. 31, 2022, the Food and Drug Administration (FDA) amended the emergency use authorizations (EUAs) of both Moderna’s and Pfizer-BioNTech’s COVID-19 vaccines to target the BA.4 and BA.5 omicron variant and other variants.
- The pharmaceutical industry outperformed the broader market over the past year.
- The pharmaceutical exchange-traded funds (ETFs) with the best one-year trailing total returns are PPH, IHE, and PJP.
- The top holdings of these ETFs are Mckesson Corp., Johnson & Johnson, and Gilead Sciences Inc., respectively.
There are six pharmaceutical ETFs that trade in the U.S., excluding inverse and leveraged ETFs as well as those with less than $50 million in assets under management (AUM). The pharmaceutical industry has outperformed the broader market over the past year. Pharmaceutical stocks, as measured by the MSCI ACWI Pharmaceuticals Index, provided a one-year trailing total return of -4.9% over the past year, below the S&P 500’s total return of -11.0%, as of Sept. 1, 2022. The best-performing pharmaceutical ETF is the VanEck Pharmaceutical ETF (PPH).
Below, we’ll take a look at the top three pharmaceutical ETFs as measured by one-year trailing total returns. All numbers below are as of Sept. 1, 2022. In order to focus on the fund’s investment strategy, the top holdings listed for ETFs exclude cash holdings and holdings purchased with securities lending proceeds except under unusual cases, such as when the cash portion is exceptionally large.
- One-Year Trailing Total Return: -4.8%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 1.63%
- Three-Month Average Daily Volume: 180,005
- Assets Under Management: $533.2 million
- Inception Date: Feb. 01, 2000
- Issuing Company: VanEck
PPH aims to track the MVIS U.S. Listed Pharmaceutical 25 Index, which gauges the performance of companies operating within the pharmaceuticals industry. The ETF provides exposure to U.S. and international companies involved in the research and development, production, and sales of pharmaceuticals. It focuses on the most liquid companies based on market capitalization and trading volume.The fund follows a blended strategy of investing in a mix of growth and value stocks across developed markets.
The top three holdings of PPH include Mckesson Corp. (MCK), a healthcare and pharmaceutical service company; sponsored ADRs of AstraZeneca PLC (AZN), a British-Swedish pharmaceutical and biotechnology company; and Eli Lily and Co. (LLY), a company that markets and sells pharmaceutical products.
- One-Year Trailing Total Return: -6.1%
- Expense Ratio: 0.39%
- Annual Dividend Yield: 1.39%
- Three-Month Average Daily Volume: 18,394
- Assets Under Management: $404.7 million
- Inception Date: May 1, 2006
- Issuing Company: BlackRock Financial Management
IHE aims to track the Dow Jones U.S. Select Pharmaceuticals Index, which is comprised of U.S. equities within the pharmaceuticals sector. The market-cap-weighted ETF provides exposure to U.S. companies that manufacture prescription drugs, over-the-counter drugs, or vaccines. It is primarily focused on pharmaceutical stocks, with a small allocation to biotechnology growth stocks. IHE’s portfolio is highly concentrated, with the top two holdings accounting for nearly 44% of invested assets.
The top three holdings of IHE include Johnson & Johnson, a healthcare company that develops medical devices, pharmaceuticals, and consumer packaged goods; Pfizer, a pharmaceutical and biotechnology company; and Royalty Pharma Plc Class A (RPRX), which is the largest buyer of biopharmaceutical royalties in the U.S.
- One-Year Trailing Total Return: -9.9%
- Expense Ratio: 0.56%
- Annual Dividend Yield: 0.75%
- Three-Month Average Daily Volume: 17,162
- Assets Under Management: $305.8 million
- Inception Date: June 23, 2005
- Issuing Company: Invesco
PJP tracks the Dynamic Pharmaceutical Intellidex Index, which is comprised of 30 U.S. pharmaceutical companies selected based on a range of investment merit criteria, including price and earnings momentum, quality, management action, and value. The ETF, which normally invests at least 90% of its assets in stocks that comprise the index, provides exposure to U.S. companies involved in the research, development, manufacture, and sale of pharmaceuticals.The fund follows a blended strategy, investing in a mix of value and growth stocks of various market caps.
The top three holdings of PJP include Gilead Sciences Inc. (GILD), a biopharmaceutical company; Amgen Inc. (AMGN), a company providing end-to-end administration of human therapeutics; and AbbVie Inc. (ABBV), is focused on developing and distributing pharmaceuticals.
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