While there have been a series of volatility-inducing events in
the U.S. starting from the Fed's 'Taper Talk' and then the tussle
between the Republicans and the Democrats, investors have still
remained relatively bullish and have put capital to work in the
While many sectors have persevered in this environment, one segment
looks well-positioned for future gains, the pharma/biotech
Top Sector ETFs to Watch in Q3 Earnings Season
This sector is one of the most desirable avenues for parking
investments when markets are heading south. Thanks to the
incredible performances of major drug companies and increased
M&A activities in both pharmaceutical and biotechnology
industries investors have been attracted to this corner of the
Moreover, the demand for healthcare services usually remains
unchanged even during an economic downturn and investments in this
sector provide sufficient protection to the capital
Play Surging Health Care with These Small Cap
Below we have mentioned the positive and negative trends that the
biotechnology & pharmaceutical industry face:
The positive trends which drive this sector mainly include: an
ageing population, people surviving longer with chronic diseases,
an increase in merger & acquisition activities (M&A) and
technology revolutions (Read:
2 Great Healthcare ETFs in Focus
While there are some positives about this sector, a few nagging
events which still worry investors include: reduction in R&D
activity, U.S. Food and Drug Administration (FDA) uncertainties,
downsizing and restructurings, pricing pressure, generic
competition and patent cliffs.
Still, thanks to the extremely positive demographic factors, and
the strong momentum in the space, investments in these sectors may
be a solid play. For those seeking to bet on this trend, we have
listed a few ETFs from the biotech & pharma industries for the
daring investors who want to place their bets in this high-profit
and high-risk sector:
Top Biotech ETFs in Focus
PowerShares Dynamic Biotech & Genome
Launched in June 2005,
tracks the performance of the Dynamic Biotechnology & Genome
Intellidex Index and invests in common stocks of biotechnology
companies and genome companies comprising the index. It has an AUM
of $218.6 million.
The fund holds about 29 stocks in its portfolio and is skewed
towards growth stocks. In terms of market cap, large cap stocks
take almost a 40% share in the fund while mid-cap and small-cap
securities share the rest.
From an individual holding point of view, some of the top holdings
include Regeneron Pharmaceuticals, Biogen Idec and Gilead Sciences
Inc. though no single security accounts for more than 6.2% of the
PBE may not be rich in AUM, but it has beaten the titans in the
category. However, the product trades in a somewhat sparse volume
of just 37,000 shares a day and charges 63 bps in fees (Read:
3 Impressive Biotech ETFs Crushing the Market
Market Vectors Biotech ETF (
Launched in December 2011,
is a passively managed fund and tracks the performance of the
Market Vectors U.S. Listed Biotech 25 Index. The fund normally
invests in small and medium-capitalization companies and foreign
companies which comprise the index and are listed on a U.S.
exchange. To date, the product has amassed $415.7 million in
The Best ETFs in Market's top sector
With holdings of 26 stocks, the fund is highly concentrated in the
top 10 holdings which account for about 65% of its total assets. In
terms of market cap, large cap stocks take almost a 64% share in
the fund while mid-cap takes 32% and small-cap securities share the
rest. Style-wise, BBH is tilted more towards growth stocks, while a
thin share is taken by value stocks.
From an individual holding point of view, the top 3 fund holdings
are Gilead Sciences Inc., Amgen Inc. and Celgene Corp. with as
asset share of 13%, 11.20% and 8.41%, respectively.
The product trades in an average daily volume of 105,400 shares a
day. The fund is easy on the pocketbook, charging investors 35 bps
in fees, which is lower than the category average of 46bps. (Read:
Is the Biotech Sector Still a Market Leader?
Top Pharmaceutical ETFs in focus
PowerShares Dynamic Pharmaceuticals (
Launched in June 2005,
tracks the Dynamic Pharmaceuticals Intellidex Index. The fund
normally invests at least 90% of its total assets in common stocks
comprising the index. So far the ETF has amassed $691.5 million in
The fund holds about 28 securities in its basket, and from an
individual security perspective, the top 3 company holdings are
Bristol-Myers Squibb Co, Celgene Corp and Gilead Sciences Inc.
While the ETF is tilted towards growth stocks, it allocates a thin
share to value funds as well (Read:
The Comprehensive Guide to Pharmaceutical ETFs
The fund's expense ratio is 0.63% while the dividend yield is
1.15%. The trading volume is roughly 141,700 shares per day.
SPDR S&P Pharmaceuticals (
Launched in June 2006,
tracks the S&P Pharmaceuticals Select Industry Index. The
product has amassed $553.1 million in assets.
The ETF holds about 31 securities in total and is totally dedicated
to the pharma sector with the top 3 holdings being Bristol-Myers
Squibb Co., Perrigo Co. and Actavis plc.
The fund charges 35bps in fees and has a dividend yield of 0.81%.
The trading volume is roughly 67,000 shares per day.
The Bottom Line
While the long-term outlook remains promising for the pharma &
biotech ETFs, investors should note that investing in the
healthcare sector requires a multifaceted approach to get a hang of
its underlying drivers.
Both the industries will continue to grow no matter what happens
with rates, especially given the demographic shift in the U.S. and
the insatiable demand for new treatments and drugs for a variety of
Moreover, the space will likely be a bright spot going forward as
the U.S. is one of the major markets for healthcare and one of the
largest spenders on public health, putting the sector in an
advantageous position (Find all
Health Care ETFs
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MKT VEC-BIOTECH (BBH): ETF Research Reports
PWRSH-DYN BIO (PBE): ETF Research Reports
PWRSH-DYN PHARM (PJP): ETF Research Reports
SPDR-SP PHARMA (XPH): ETF Research Reports
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