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. 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 the 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 pharmaceutical sector while avoiding the idiosyncratic risks of investing in individual stocks.
The pharmaceutical ETF universe is comprised of about 5 distinct ETFs, excluding inverse and leveraged ETFs, as well ones with less than $50 million in assets under management (AUM). The best performing pharmaceutical ETF for Q3 2020, based on performance over the past year, is the KraneShares MSCI All China Health Care Index ETF (KURE). We examine the top 3 pharmaceutical ETFs below. All numbers in this story are as of May 12, 2020.
- Performance over 1-Year: 28.8%
- Expense Ratio: 0.65%
- Annual Dividend Yield: 0.21%
- 3-Month Average Daily Volume: 70,411
- Assets Under Management: $60.0 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 and tracks the MSCI China All Shares Health Care 10/40 Index, which has about 80 components. The ETF follows a blended strategy, investing in both growth and value stocks. The ETF’s top three holdings include Jiangsu Hengrui Medicine, a pharmaceutical company; Wuxi Biologics Cayman Inc. (2269), a pharmaceutical company; and Shenzhen Mindray Bio-Medical Electronics Co. Ltd. (300760), a manufacturer and distributor of medical equipment.
- Performance over 1-Year: 7.9%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 0.71%
- 3-Month Average Daily Volume: 136,781
- Assets Under Management: $232.3 million
- Inception Date: June 19, 2006
- Issuing Company: State Street SPDR
XPH is a multi-cap, blended ETF that focuses on the U.S. pharmaceutical companies within the healthcare sector 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; Eli Lilly and Co. (LLY), a pharmaceutical company; and Catalent Inc. (CTLT), a company that develops and produces drug delivery systems.
- Performance over 1-Year: 6.5%
- Expense Ratio: 0.36%
- Annual Dividend Yield: 1.81%
- 3-Month Average Daily Volume: 94,090
- Assets Under Management: $234.7 million
- Inception Date: December 20, 2011
- Issuing Company: VanEck
PPH is a multi-cap, blended ETF investing in a mix of value and growth stocks. The fund invests in U.S.-listed pharmaceutical companies across developed markets and tracks the MVIS US Listed Pharmaceutical 25 Index, whose constituents get at least 50% of their revenue from pharmaceuticals. The ETF’s top three holdings include AstraZeneca PLC (AZN), a U.K.-based company that researches and manufactures pharmaceutical and other medical products; Pfizer; and Teva Pharmaceutical Industries Ltd. (TEVA), an Israel-based pharmaceutical company.