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 both to develop successful vaccines treat COVID-19, or to distribute COVID-19 vaccines already approved by regulatory agencies.
- The pharmaceutical industry underperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are KURE, MJJ, and POTX.
- The top holdings of these ETFs are WuXi Biologics (Cayman) Inc., Mettler-Toledo International Inc., and Tilray Inc., respectively.
The pharmaceutical ETF universe is comprised of 7 distinct ETFs, 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 in the past year. As of February 10, the benchmark S&P Pharmaceuticals Industry Index had 1-year trailing total returns of 7.7% compared with 18.9% for the S&P 500. 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 February 15, 2021.
- 1-Year Trailing Total Returns: 83.9%
- Expense Ratio: 0.65%
- Annual Dividend Yield: N/A
- 3-Month Average Daily Volume: 86,175
- Assets Under Management: $217.6 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. The ETF follows a blended strategy, investing in both growth and value stocks, and has about 93 holdings. The ETF's top three holdings include WuXi Biologics (2269:HKG), a pharmaceutical company; class A shares of Jiangsu Hengrui Medicine Co. Ltd. (600276:SHG), a pharmaceutical company; and class A shares of Shenzhen Mindray Bio-Medical Electronics Co. Ltd. (300760:SHE), a manufacturer and distributor of medical equipment.
- 1-Year Trailing Total Returns: 73.9%
- Expense Ratio: 0.70%
- Annual Dividend Yield: N/A
- 3-Month Average Daily Volume: 700
- Assets Under Management: $51.5 million
- Inception Date: December 13, 2019
- Issuing Company: BMO Financial Group
MJJ is a multi-cap blended fund that is structured as an exchange-traded note (ETN). MJJ targets the Indxx MicroSectors North American Cannabis Index. The index includes North American stocks related to either medical or industrial use of cannabis and related products. Like POTX below, MJJ does not specifically target pharmaceutical names, although it does include pharmaceutical companies within the cannabis industry. The fund holds about 22 stocks in its portfolio, and more than 77% of assets are concentrated in the top 10 holdings. The top holdings of MJJ include Mettler-Toledo International (MTD), a maker of scales and analytical instruments; Agilent Technologies Inc. (A), an analytical instrumentation development and manufacturing company; and Waters Corp. (WAT), a maker of analytical instruments and software.
- 1-Year Trailing Total Returns: 55.5%
- Expense Ratio: 0.50%
- Annual Dividend Yield: 2.65%
- 3-Month Average Daily Volume: 563,994
- Assets Under Management: $115.4 million
- Inception Date: September 17, 2019
- Issuing Company: Global X
POTX is a multi-cap, blended fund that tracks the Cannabis Index. The fund seeks to invest in companies across the cannabis industry, including companies which grow, produce, and distribute cannabis products, as well as companies that provide financial services to the cannabis industry, and others. While POTX does hold traditional pharmaceutical stocks, it includes companies involved in pharmaceutical applications of cannabis. The fund holds about 21 holdings, with roughly three quarters of assets concentrated in the 10 largest positions. The top holdings of POTX include Tilray (TLRY), a pharmaceutical cannabis company; Aphria Inc. (APHA:TSE), a producer of medical and recreational cannabis products; and Aurora Cannabis Inc. (ACB:TSE), a producer of medical cannabis products.
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