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.
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 either develop new vaccines to treat COVID-19 or distribute COVID-19 vaccines already approved by regulatory agencies.
On Aug. 23, 2021, the U.S. Food and Drug Administration (FDA) approved the Pfizer-BioNTech COVID-19 vaccine, now marketed as Comirnaty. This vaccine is approved for individuals ages 16 and older and is under emergency use authorization (EUA) for individuals 12–15 years old, as well as for a third dose in immunocompromised individuals. It is the first COVID-19 vaccine to receive full approval.
- 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 PJP, IHE, and PPH.
- The top holdings of these ETFs are Eli Lilly & Co., Johnson & Johnson, and sponsored American depositary receipts (ADRs) of Astrazeneca PLC, respectively.
The pharmaceutical ETF universe is composed of six ETFs that trade in the United States, 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 Aug. 13, 2021, the benchmark S&P Pharmaceuticals (Industry) Index had one-year trailing total returns of 25.2% compared with 34.5% for the S&P 500. The best performing pharmaceutical ETF is the Invesco Dynamic Pharmaceuticals ETF (PJP).
Below, we’ll take a look at the top three pharmaceutical ETFs as measured by one-year trailing total returns. All numbers in this story are as of Aug. 13, 2021.
- One-Year Trailing Total Returns: 25.1%
- Expense Ratio: 0.56%
- Annual Dividend Yield: 0.67%
- Three-Month Average Daily Volume: 30,355
- Assets Under Management: $448.2 million
- Inception Date: June 23, 2005
- Issuing Company: Invesco
PJP is a multi-cap fund that targets the Dynamic Pharmaceutical Intellidex Index. The index is composed of pharmaceutical stocks selected for capital appreciation potential based on factors including price momentum, earnings momentum, quality, management action, and value.
More than half of the fund’s assets are invested in the top 10 holdings. The top holdings for PJP include Eli Lilly & Co. (LLY), Pfizer Inc. (PFE), and Gilead Sciences Inc. (GILD), all of which are pharmaceutical companies.
- One-Year Trailing Total Returns: 21.6%
- Expense Ratio: 0.42%
- Annual Dividend Yield: 1.34%
- Three-Month Average Daily Volume: 6,715
- Assets Under Management: $386.5 million
- Inception Date: May 1, 2006
- Issuing Company: BlackRock Financial Management
IHE is a multi-cap growth fund targeting the Dow Jones U.S. Select Pharmaceuticals Index. The index is composed of U.S. companies that manufacture prescription or over-the-counter (OTC) drugs or vaccines.
IHE is highly concentrated in a small number of holdings, with the top 10 positions accounting for nearly 80% of invested assets. The top two holdings alone receive about 44% of assets. These holdings are Johnson & Johnson (JNJ), a producer of medical devices, pharmaceuticals, and related products, and Pfizer Inc., described above. The next largest holding is Eli Lilly & Co., described above.
- One-Year Trailing Total Returns: 20.4%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 1.53%
- Three-Month Average Daily Volume: 53,183
- Assets Under Management: $338.6 million
- Inception Date: Dec. 20, 2011
- Issuing Company: VanEck
PPH is a multi-cap, blended fund that targets the MVIS US Listed Pharmaceutical 25 Index. The index is composed of companies involved in pharmaceuticals, including pharmaceutical research and development as well as production, marketing, and sales of pharmaceutical products.
The fund can include both domestic and U.S.-listed foreign companies, which currently make up about a third of the portfolio. The top holdings of PPH include sponsored American depositary receipts (ADRs) of Astrazeneca PLC (AZN), a British-Swedish pharmaceutical and biotech company; Pfizer Inc.; and Eli Lilly & Co.
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