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Best pharmaceutical ETFs to buy in 2021
Pharmaceutical ETFs are funds that invest in companies that form part of the $1 trillion pharma industry. They often contain businesses that manufacture some of the world’s most used drugs. This guide picks five of the top pharma ETFs for the year ahead.
What are the top pharmaceutical ETFs to buy?
Our experts have selected five of the most promising pharmaceutical ETFs for this year listed in the table below. To find more information on each one, scroll down to keep reading.
|#||ETF symbol||ETF name|
|1||IHE||iShares US Pharmaceuticals|
|2||CHNA||Loncar China BioPharma|
|4||PJP||Invesco Dynamic Pharmaceuticals|
|5||PILL||Direxion Daily Pharmaceuticals & Medical Bull|
1. iShare US Pharmaceuticals (NYSEARCA: IHE)
The IHE ETF gives exposure to US companies that manufacture prescription or over-the-counter drugs and vaccines. Created in 2006, the ETF seeks to track the performance of the Dow Jones US Select Pharmaceuticals index.
IHE is composed of just under fifty companies and is heavily weighted towards large cap stocks. Its top two holdings, Johnson & Johnson, and Pfizer account for over 40% of its invested capital. Both are large well known companies, with Pfizer bolstering the ETFs performance in 2020 after its covid vaccine rollout.
The reason the iShare UK Pharmaceuticals takes the top spot on our list is due to its solid prior growth of nearly 300% since inception. It also holds some of the largest pharma companies in the world and its strong performance during the pandemic confirms its ability to hold up in all economic conditions.
2. Loncar China BioPharma (NASDAQ: CHNA)
The second spot on our list goes to the Loncar China BioPharma ETF, which contains both Chinese and US pharmaceutical companies. It seeks to track the performance of the Loncar China BioPharma Index. While it holds companies on both the NASDAQ and Hong Kong Stock Exchanges, it has a larger weighting towards Chinese companies.
Around 80% of the ETF comprises pharma companies located in China and it has an equal weighting across all of its holdings, amounting to an average of about 2%. Its largest two holdings are BeiGene ADR and CARsgen Therapeutics Holdings. BeiGene engages in the development of cancer drugs while CARsgen develops antigen receptor cell therapies.
It’s one of the youngest ETFs on our list and was created in 2018. Since its inception it has performed well, especially during the covid pandemic which saw its price increase in excess of 100%. It has since slowed down but takes the second place due to its heavy exposure to the growing Chinese pharmaceutical market.
3. VanEck Pharmaceutical (NASDAQ: PPH)
The VanEck ETF aims to track the performance of an index called the MVIS US Listed Pharmaceutical. It is the joint smallest ETF on our list in terms of holdings, with just 25, however many of its companies are large cap stocks.
Unlike the previous two ETFs on our list, PPH includes companies from around the world, with the majority located in the US or Europe. The ETFs top ten holdings account for 50% of its total weighting and included companies like Glaxosmithkline, Johnson & Johnson, and Merck and Co.
Although PPH holds a small number of companies, it favours the largest businesses in the pharmaceutical industry based on market capitalisation. Due to its stable and consistent growth since its inception in 2000, our analysts believe it is one of the top pharma ETFs to invest in the coming year.
4. Invesco Dynamic Pharmaceuticals (NYSEARCA: PJP)
The Invesco Dynamic Pharmaceuticals ETF is the best performing on our list. Since its inception in 2005, it has seen an increase of over 400%. Like PPH above, it’s the joint smallest on our list with just 25 holdings.
It tracks the performance of an index called Dynamic Pharmaceutical Intellidex and is focused on giving investors exposure to US based pharma companies. Its top three holdings account for nearly 20% of its total size. They include Merck & co, Pfizer, and Abbott Laboratories.
Similarly to most ETFs on our list, it took a hit during the coronavirus pandemic, but has quickly recovered in the time since. It takes fourth place due to its concentration of large industry leading companies and previous growth.
5. Direxion Daily Pharmaceuticals & Medical Bull (NYSEARCA: PILL)
The final ETF on our list is the Direxion Daily Pharmaceuticals & Medical Bull. Its aim is to track an index called the S&P Pharmaceuticals Select Industry Index. However, unlike the others on our list, PILL is a leveraged ETF.
While unlevered ETFs track an index’s performance long term, PILL has an investment objective that is 300% the return of the index it tracks per day. Investing in this ETF is a riskier choice compared to the four we have listed prior. Its top ten holdings amount to 50% of its total and are all US based companies.
Its largest holding is Cassava Sciences, which is a clinical stage biopharm company that focuses on neuroscience. Although risky, PILL takes the last spot on our list because of the potential short term gains on offer. Out of the five ETFs, PILL was the strongest performer during the pandemic, returning over 300% to investors.
Where to buy the best pharmaceutical ETFs
If you are ready to invest in pharmaceutical ETFs, finding a reliable platform key. Below we’ve listed three of our expertly selected brokers. You can click on any and be taken directly to their website and start investing.
What is a pharmaceutical ETF?
Pharmaceutical exchange traded funds offer investors exposure to some of the largest pharma companies in the world. These include businesses who research, discover, develop, and manufacture drugs used to cure diseases and vaccines among others.
ETFs are an easy way for investors to generate returns from a specific sector without having to buy individual stocks. The pharmaceutical industry is one of the most popular amongst investors with the large returns on offer. It’s currently a $1 trillion market and benefited in recent times from heavyweights competing to deliver a covid vaccine.
Are pharmaceutical ETFs a good investment?
Yes they can be, especially if you’re looking for slow and steady growth rather than explosive gains. The pharmaceutical industry includes some of the largest companies in the world, many of which have led the race in producing a covid vaccine.
Pharmaceutical ETFs have an advantage over other industries, in that they offer stability and often perform better during times of economic downturn. This was highlighted during the pandemic which saw the pharma sector outperform other industries. Investing in pharma ETFs is a great way to balance a portfolio while reducing risk.
Much of the industry is based around research and development of new drugs and vaccines and it can be difficult to keep track of new information. That’s why its a good idea to stay informed about the latest news which you can do so by clicking on the links below.
Latest pharmaceutical news
Zimmer Biomet price outlook as Loop Capital initiates coverage with a buy rating
Is it safe to buy Healthequity stock after plunging 24% after earnings?
HealthEquity went down by 25% and announced its third-quarter financials for 2021
Could Omicron be a ‘positive turning point’ in the global pandemic?
CDC confirms the first case of Omicron in the U.S.
Dr Scott Gottlieb disagrees with Moderna CEO
Fact-checking & references
Our editors fact-check all content to ensure compliance with our strict editorial policy. The information in this article is supported by the following reliable sources.
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