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Proprietary Data Insights Top Pharmaceuticals ETF Searches This Month
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The Most Popular Pharmaceuticals ETFs
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Today, we do something we love doing with ETFs in a sector we don’t pay a ton of attention to. We use Trackstar, our proprietary sentiment indicator, to find the pharmaceuticals ETFs investors have been searching for most across our 100+ financial media partners. Then, we look inside a couple to see what makes them tick (or not). As was most recently the case with smart-beta dividend ETFs and artificial intelligence ETFs, it’s almost always instructive to conduct this exercise. A look at the recent and longer-term performance of the four most popular pharma ETFs in Trackstar raises a question.
First, those returns, while solid over the long-term (for the most part), don’t indicate a ton of volatility. At least not in these particular and large ETFs. Probably because they don’t own a ton of the speculative stocks we have come to know among pharma stocks whose fate often rides on the approval of just one or two drugs. Second, why the discrepancy between two passive, index-tracking ETFs — the iShares U.S. Pharmaceuticals ETF (IHE) and the SPDR S&P Pharmaceuticals ETF (XPH) — on five-year returns? The Juice thinks we can find the answer by looking under the hoods of these two ETFs. First, IHE passively tracks the Dow Jones U.S. Select Pharmaceuticals Index and carries an expense ratio of 0.40%. XPH passively tracks the S&P Pharmaceuticals Select Industry Index and has an expense ratio of 0.35%. These indexes sound super similar. More often than not in these cases, we have near-identical returns because, even if created and managed by different agencies, they tend to hold the same stocks. Granted, we tend to deal more with tech stocks, consumer companies and all types of dividend payers here at The Juice. So you see a lot of the same names in competing indices in these categories. Even so, this is curious. IHE has returned just over 31% in the last five years versus a pretty much flat performance from XPH and some recent downside. So, smart investors that we are, we look at each ETFs top holdings, which will be the same as the indexes they track. Here’s the top ten names in IHE:
A veritable who’s who among pharma stocks, including JNJ, which has increased its dividend for a solid 63 consecutive years. Now the top ten names in underperformer XPH:
At a glance, there are fewer household, legacy names in XPH than in IHE. But more than a few still appear in the top 10. While we’re the first to beat our chest when we feel like we’re experts in an area, we’re also not too proud to admit when we’re not. So if this is your space, please use the feedback link at the bottom of the page to give us your insight. Both ETFs have benefited from LLY’s 554% surge over the last five years, which blew away all the other names. However —and here’s a huge part of our answer — IHE benefited way more. Why? Because the index IHE tracks — and, as a result, the IHE ETF — is overweight LLY at a 23% concentration. XPH only has a 4.8% exposure. It would be interesting to hear your thoughts on this. It’s also interesting to consider that if you own IHE, you’re not only overweight LLY at 23%, you’re also overweight JNJ at 22%. While this might have served IHE well in the rearview mirror, the more even exposure across the pharma universe you get with XPH could benefit the ETF if LLY and JNJ begin to falter.
The Bottom Line: Whether you know a ton about a sector or group of stocks or you’re a relative novice in the area, you can always gain some knowledge and insights into recent performance, as well as thoughts on what might happen going forward, by looking inside the ETFs that track broad market and sector-specific indexes. We love to do this at The Juice. And, like said, we know a lot, but we don’t know it all. We’re always open to hearing your analysis. Additionally, send us some areas of the stock market (sectors or types of stocks) you’d like us to feature in future installments where we go under the hood of popular ETFs. |
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