Investors may want to consider pharmaceutical exchange-traded funds as a way to gain exposure to top pharma companies.
The pharmaceutical market reached a total value of US$1.25 trillion in 2019, according to data from Statista, up significantly from US$887 billion in 2010. By 2024, that value is is expected to increase even further to an estimated US$1.59 billion.
Experienced and novice investors alike may want to consider pharmaceutical exchange-traded funds (ETFs) as a way to gain exposure to the top pharma companies.
Pharmaceutical ETFs are key for investors who want to trade a set of assets in the pharmaceutical industry instead of focusing solely on individual pharmaceutical stocks. The main advantage of pharma ETFs is the fact that they provide exposure to an overarching sector, but still trade like a stock; they also offer less market volatility and lower fees and expenses.
To help investors learn more about their options for investing in the pharmaceutical sector, the Investing News Network presents the five top pharma ETFs in the space, according to ETFdb.com. These funds often have diverse holdings across some of the most important sectors in the pharmaceutical industry, including pain therapeutics, oncology, vaccines and biotechnology.
The pharmaceutical ETFs on this list are arranged by their asset value as of October 26, 2020.
1. iShares US Pharmaceuticals ETF (ARCA:IHE)
Net asset value: US$358.98 million
Created on May 5, 2006, this iShares ETF tracks some of the top US pharma companies. In total, the ETF follows 48 holdings, with 61 percent being large-cap stocks, 22 percent being mid-cap stocks and 17 percent being divided between micro-cap and small-cap stocks.
Its top holdings include Johnson & Johnson (NYSE:JNJ) at 22 percent, Merck (NYSE:MRK) at 19 percent, Horizon Therapeutics (NASDAQ:HZNP) at 4.9 percent, Zoetis (NYSE:ZTS) at 4.64 percent and Bristol Myers-Squibb (NYSE:BMY) with a 4.6 percent weightage.
2. Invesco Dynamic Pharmaceuticals ETF (ARCA:PJP)
Net asset value: US$329.72 million
The Invesco Dynamic Pharmaceuticals ETF is primarily focused on giving investors exposure to US-based pharmaceutical companies. An analyst report says that this ETF chooses individual securities based on certain investment criteria, namely stock valuation and risk factors. Notably, it claims that investing in a pharmaceutical company can be risky due to US Food and Drug Administration regulations and the “rigorous testing” required before a product is leveraged on the market.
This ETF was started on June 23, 2005, and currently tracks 30 holdings. Its top holdings are pharma giants such as Amgen (NASDAQ:AMGN), Eli Lilly and Company (NYSE:LLY), Johnson & Johnson, Pfizer (NYSE:PFE) and Merck, all weighing in at over 5 percent each.
3. VanEck Vectors Pharmaceutical ETF (NASDAQ:PPH)
Net asset value: US$232.66 million
Established in late 2011, the VanEck Vectors Pharmaceutical ETF tracks the MVIS US Listed Pharmaceutical 25 Index. It has the capacity to provide big returns, even though there are some risks attached to the ETF. An analyst report indicates that investors looking for “tactical exposure” to the pharma sector might consider this ETF as an investment option.
Included in this ETF are a slightly smaller 26 holdings, including top constituents such as Novo Nordisk (NYSE:NVO), AstraZeneca (NASDAQ:AZN), Bristol Myers-Squibb, Pfizer and Novartis (NYSE:NVS), all with weightings of over 5 percent each.
4. SPDR S&P Pharmaceuticals ETF (ARCA:XPH)
Net asset value: US$230.62 million
The SPDR S&P Pharmaceuticals ETF came into the market on June 19, 2006, and represents the pharmaceutical sub-industry sector of the S&P Total Markets Index. An analyst report for the ETF suggests that, due to its narrow focus — which includes pharma giants that post “big returns” during times of consolidation — it should not be considered for a long-term investment portfolio.
While this pharma ETF tracks 43 holdings, the fund’s top five are all weighted between 4 and 5 percent, including Horizon Therapeutics, Royalty Pharma (NASDAQ:RPRX), Catalent (NYSE:CTLT), Zoetis and Jazz Pharmaceuticals (NASDAQ:JAZZ).
5. KraneShares MSCI All China Health Care Index ETF (ARCA:KURE)
Net asset value: US$129.62 million
The KraneShares MSCI All China Health Care Index ETF was launched in February 2018 and tracks an index of large- and mid-cap Chinese stocks in the healthcare sector, all weighted by market capitalization. According to an analyst report, the fund provides investors with “exposure to a relatively small slice of the Chinese economy that tends to be dominated by pharmaceuticals.”
The ETF tracks 84 holdings, and its top five are WuXi Biologics (HKEX:2269,OTC Pink:WXIBF) at 8.66 percent, Jiangsu Hengrui Medicine (SHA:600276) at 7.51 percent, Shenzhen Mindray Bio-Medical Electronics (SZSE:300760) at 5.43 percent, Sino Biopharmaceutical (HKEX:1177,OTC Pink:SBMFF) at 4.01 percent and CSPC Pharmaceutical Group (HKEX:1093) at a weightage of 3.95 percent.
This is an updated version of an article originally published by the Investing News Network in 2016.
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Securities Disclosure: I, Melissa Pistilli, hold no investment interest in any of the companies mentioned.