The Pharmaceutical Exchange Fund (ETF) allows investors to obtain a basket of shares of U.S. and foreign pharmaceutical manufacturers and related companies through a single investment. These companies discover, develop, and produce drugs that are used to cure diseases, vaccinate, or relieve symptoms of diseases. Pharmaceutical stocks include two major pharmaceutical companies, Pfizer Inc. (PFE) and Merck & Co. (MRK), as well as biotech companies and smaller, fast-growing companies. Many of these ETFs are dominated by Chinese companies.
Pharmaceutical ETFs allow investors to share the profits of the entire industry while avoiding the special risks of investing in individual stocks. As pharmaceutical companies compete globally to develop new vaccines for the treatment of COVID-19 or distribute COVID-19 vaccines that have been approved by regulatory agencies, the industry is currently more attractive to many investors.
On October 29, 2021, the U.S. Food and Drug Administration (FDA) authorized the Pfizer-BioNTech COVID-19 vaccine for emergency use in children aged 5 to 11 years. The FDA previously approved the same vaccine for individuals 16 years of age and older in August 2021, making it the first COVID-19 vaccine to be fully approved. At the time, it also issued emergency use authorizations for the vaccine to individuals aged 12-15.
- In the past year, the pharmaceutical industry underperformed the market.
- The pharmaceutical exchange-traded funds (ETF) that track the best total returns in a year are PJP, PPH and IHE.
- The largest holdings of these ETFs are Merck & Co. Inc., Novo Nordisk A/S’s B-sponsored ADR and Johnson & Johnson.
The pharmaceutical ETF field consists of six ETFs traded in the United States, excluding reverse and leveraged ETFs and ETFs with assets under management (AUM) of less than US$50 million. In the past year, the pharmaceutical industry underperformed the market. As of November 16, 2021, the S&P 500’s one-year tracking total return rate is 32.1%. In contrast, the US-centric benchmark S&P 1500 Pharmaceutical Industry Index recorded a one-year tracking total return of 22.6% during this period. The global benchmark MSCI ACWI Pharmaceutical Index has a one-year tracking total return of 17.1%. The best performing pharmaceutical ETF is Invesco Dynamic Pharmaceuticals ETF (PJP).
Below, we will look at the top three pharmaceutical ETFs measured by tracked total returns in one year. All figures below are as of November 16, 2021.
- One-year tracking total return: 22.0%
- Expense rate: 0.58%
- Annual dividend yield: 0.75%
- Three-month average daily volume: 21,115
- Assets under management: US$440.3 million
- Date of establishment: June 23, 2005
- Issuing company: Invesco
PJP is a multi-share fund that targets the Dynamic Pharmaceutical Intellidex index. The index is composed of 30 US pharmaceutical stocks with potential for capital appreciation. These stocks are selected based on factors such as price momentum, earnings momentum, quality, management behavior, and value. The companies that make up the index are engaged in the research, development, manufacturing, sales or distribution of various drugs.
Nearly 58.0% of the fund’s assets are invested in the top 10 holdings, making it highly concentrated in the largest positions. PJP’s largest holdings include the pharmaceutical company Merck & Co (MRK); Abbott Laboratories (ABT), a medical device and healthcare company; and Pfizer (PFE), a pharmaceutical company.
- One-year tracking total return: 17.7%
- Expense rate: 0.35%
- Annual dividend yield: 1.63%
- Three-month average daily volume: 32,277
- Assets under management: $342.3 million
- Date of establishment: December 20, 2011
- Issuing company: VanEck
PPH is a multi-share hybrid fund that tracks the MVIS US-listed Pharmaceutical 25 Index. The index is composed of companies involved in pharmaceuticals, including pharmaceutical research and development, and pharmaceutical production, marketing and sales. The fund can include domestic and foreign companies listed in the United States, and currently accounts for about one-third of the investment portfolio.
PPH’s largest holdings include the Danish pharmaceutical company Novo Nordisk A/S (NVO)’s B-guaranteed American Depositary Receipts (ADR); Merck & Co; and Pfizer
- One-year tracking total return: 14.1%
- Expense rate: 0.42%
- Annual dividend yield: 1.39%
- Three-month average daily volume: 5,271
- Assets under management: USD 390.1 million
- Date of establishment: May 1, 2006
- Issuing company: BlackRock Financial Management
IHE is a multi-share growth fund for the Dow Jones US Select Pharmaceutical Index. The index is composed of US companies that manufacture prescription drugs, over-the-counter (OTC) drugs, or vaccines.
IHE is highly concentrated in minority holdings, with the top 10 holdings accounting for nearly 78% of investment assets. Only the top three holdings accounted for more than 47% of assets. These holding companies are Johnson & Johnson (JNJ), Pfizer and Merck, manufacturers of medical devices, drugs and related products.
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