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 has 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.
- The pharmaceutical industry underperformed 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 holding of the first and third of these ETFs is AbbVie Inc., and the top holding of the second ETF is Johnson & Johnson.
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 underperformed 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 10.7% over the past year, below the S&P 500's total return of 17.1%, as of Feb. 8, 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 Feb. 8, 2022.
- One-Year Trailing Total Return: 11.7%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 1.63%
- Three-Month Average Daily Volume: 72,856
- Assets Under Management: $385.0 million
- Inception Date: Dec. 20, 2011
- 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. PPH's top three holdings are AbbVie Inc. (ABBV), a biopharmaceutical company; Bristol-Myers Squibb Co. (BMY), a pharmaceutical company; and sponsored ADRs of Sanofi SA (SNY), a France-based healthcare company that manufactures pharmaceutical products.
- One-Year Trailing Total Return: 4.5%
- Expense Ratio: 0.42%
- Annual Dividend Yield: 1.39%
- Three-Month Average Daily Volume: 8,647
- Assets Under Management: $391.6 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 and biotechnology growth stocks with various market caps. The fund's top three holdings are Johnson & Johnson (JNJ), a healthcare company that develops medical devices, pharmaceuticals, and consumer packaged goods; Pfizer, a pharmaceutical and biotechnology company; and Viatris Inc. (VTRS), a pharmaceutical company.
- One-Year Trailing Total Return: -4.7%
- Expense Ratio: 0.58%
- Annual Dividend Yield: 0.75%
- Three-Month Average Daily Volume: 33,873
- Assets Under Management: $335.5 million
- Inception Date: June 23, 2005
- Issuing Company: Invesco
PJP tracks the Dynamic Pharmaceuticals 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. Its top three holdings are AbbVie; Amgen Inc. (AMGN), a biopharmaceutical company; and Johnson & Johnson.
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