Invest in U.S. Pharmaceuticals with This Fund

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.
Pfizer

(Note: Second in a series on pharmaceutical ETFs)

The SPDR S&P Pharmaceuticals ETF (NYSEARCA: XPH) tracks an equal-weighted index of U.S. pharmaceutical companies.

The exchange-traded fund (ETF) seeks to provide exposure to the pharmaceuticals segment of the S&P TMI. The ETF offers modified equal-weighted exposure to roughly 30 U.S. pharmaceutical companies, including large-, mid- and small-cap stocks.

The fund’s weighting scheme causes it to be far less concentrated than the industry itself, which is dominated by a handful of mega-cap names such as Johnson & Johnson (NYSE: JNJ), Pfizer Inc. (NYSE: PFE) and Merck (NYSE: MRK). Its heavy tilt towards mid- and small caps makes for a rather volatile fund relative to other equities in the same industry.

XPH sees significant daily trading volume with small spreads, allowing liquidity for investors who make block trades. The fund lets investors take strategic or tactical positions at a more targeted level than traditional sector-based investing.

The fund’s top holdings include Horizon Therapeutics Public Limited Company (NASDAQ: HZNP), 6.80%; Catalent Inc. (NASDAQ: HZNP), 5.22%; Jazz Pharmaceuticals Plc (NASDAQ: Jazz) 4.96%; Zoetis, Inc. Class A (NYSE: ZTS), 4.88%; and Pfizer Inc. (NYSE: PFE) 4.69%. Plus, the fund is heavily weighted in Pharmaceuticals (55.02%), Bio Therapeutic Drugs (21.5%) and Veterinary Drugs (9%).

Chart Courtesy of StockCharts.com

The fund has $247.05 million in assets under management and currently trades around $45 per share. XPH seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P Pharmaceuticals Select Industry Index. The fund is very efficient, offering a low fee and tight tracking that lags by less than XPH’s expense ratio. Overall, XPH is a solid way to capture a less-concentrated version of the pharmaceuticals market.

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As always, I urge any interested investor to exercise due diligence in deciding whether or not this fund is suitable for individual portfolio goals.

Remember, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

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