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. Many of these ETFs are dominated by Chinese companies such as Jiangsu Hengrui Medicine Co. Ltd. (600276). Pharmaceutical ETFs allow investors to share in the profits earned across the sector while avoiding the idiosyncratic risks of investing in individual stocks. The industry currently is more attractive to many investors because of the worldwide race among pharmaceutical companies to develop successful vaccines and therapies to treat COVID-19 in the midst of the global pandemic.
- Pharmaceutical ETFs outperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are KURE, XPH, and IHE.
- The top holdings of these ETFs are WuXi Biologics (Cayman) Inc., Horizon Therapeutics PLC, and Johnson & Johnson, respectively.
The pharmaceutical industry has outperformed the broader market in the past year. As of November 2, the benchmark S&P Pharmaceuticals Industry Index had 1-year trailing total returns of 14.2% compared with 10.0% for the S&P 500. The pharmaceutical ETF universe is comprised of 5 distinct ETFs, excluding inverse and leveraged ETFs, as well as those with less than $50 million in assets under management (AUM). The best performing pharmaceutical ETF is the KraneShares MSCI All China Health Care Index ETF (KURE). Below, we'll take a look at the top 3 pharmaceutical ETFs as measured by 1-year trailing total returns. Aside from the benchmark and S&P performance figures above, all numbers in this story are as of November 3, 2020.
- 1-Year Trailing Total Returns: 46.8%
- Expense Ratio: 0.65%
- Annual Dividend Yield: 0.17%
- 3-Month Average Daily Volume: 65,138
- Assets Under Management: $131.5 million
- Inception Date: February 1, 2018
- Issuing Company: KraneShares
KURE is a large-cap ETF that is focused on pharmaceutical companies within China's healthcare sector. It tracks the MSCI China All Shares Health Care 10/40 Index, which has more than 80 components. The ETF follows a blended strategy, investing in both growth and value stocks. The ETF's top three holdings include WuXi Biologics (Cayman) Inc. (2269:HKG), a pharmaceutical company; Jiangsu Hengrui Medicine Co. Ltd. (600276:SHH), a pharmaceutical company; and Shenzhen Mindray Bio-Medical Electronics Co. Ltd. (300760:SHZ), a manufacturer and distributor of medical equipment.
- 1-Year Trailing Total Returns: 15.3%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 0.59%
- 3-Month Average Daily Volume: 52,491
- Assets Under Management: $220.6 million
- Inception Date: June 19, 2006
- Issuing Company: State Street SPDR
XPH is a multi-cap, blended ETF that focuses on U.S. pharmaceutical companies and tracks the S&P Pharmaceuticals Select Industry Index. XPH's underlying index makes it different from many other pharmaceutical ETFs. The index is equal-weighted and offers investors balanced exposure to the sector, avoiding the potential pitfalls of cap-weighted indexes. The ETF's top three holdings include Horizon Therapeutics PLC (HZNP), a biopharmaceutical company; Royalty Pharma PLC (RPRX), a company that invests in pharmaceutical royalties and intellectual property; and Catalent Inc. (CTLT), a company that develops and produces drug delivery systems.
- 1-Year Trailing Total Returns: 13.7%
- Expense Ratio: 0.42%
- Annual Dividend Yield: 1.31%
- 3-Month Average Daily Volume: 5,914
- Assets Under Management: $343.1 million
- Inception Date: May 5, 2006
- Issuing Company: iShares
IHE is a multi-cap growth fund that tracks the Dow Jones U.S. Select Pharmaceuticals Index, a broad index of U.S. pharmaceuticals companies. IHE is a relatively concentrated fund with just 48 holdings and about three quarters of invested assets focused on the top 10 holdings. The ETF's top three holdings include Johnson & Johnson (JNJ), a maker of pharmaceuticals, medical devices, and consumer medical products; Merck & Co. Inc. (MRK), a multinational pharmaceutical company; and Horizon Therapeutics.