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The iShares U.S. Pharmaceuticals ETF (NYSEMKT:IHE) provides a lower-cost, more diversified entry into the drug manufacturing sector than the Invesco Pharmaceuticals ETF (NYSEMKT:PJP), which utilizes a more concentrated selection process.
Both the iShares U.S. Pharmaceuticals ETF and the Invesco Pharmaceuticals ETF provide targeted exposure to the domestic pharmaceutical sector. While iShares utilizes a broad market-cap-weighted strategy, Invesco employs a dynamic selection methodology that filters for value and growth characteristics among 30 stocks, resulting in distinct risk profiles within the same industry.
Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
The iShares fund is more affordable for long-term investors, with an expense ratio 0.21 percentage points lower than the Invesco fund. Additionally, iShares U.S. Pharmaceuticals ETF offers a higher payout, with a yield gap of 0.51 percentage points.
The iShares U.S. Pharmaceuticals ETF allocates 100% of its capital to healthcare stocks, specifically targeting 53 holdings in the drug manufacturing space. Its largest positions include Eli Lilly (NYSE:LLY) at 23.57%, Johnson & Johnson (NYSE:JNJ) at 22.72%, and Pfizer (NYSE:PFE) at 4.59%. This concentration makes the fund highly sensitive to the fortunes of two massive industry players, which together represent over 45% of the total assets. It was launched in 2006. iShares U.S. Pharmaceuticals ETF has paid $1.43 per share over the trailing 12 months, which on its recent ~$103.2 share price works out to a 1.4% yield.
In contrast, the Invesco Pharmaceuticals ETF maintains a more concentrated list of 28 holdings, also with 100% healthcare exposure. However, it manages individual stock risk by capping weights more aggressively; its top holdings include Gilead Sciences (NASDAQ:GILD) at 5.58%, Pfizer at 5.48%, and AbbVie (NYSE:ABBV) at 5.46%. The portfolio is balanced using specific investment factors rather than pure market capitalization. It was launched in 2005. Invesco Pharmaceuticals ETF has paid $1.13 per share over the trailing 12 months, which on its recent ~$127.1 share price works out to a 0.9% yield.
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Pharmaceutical stocks are having a remarkable run, propelled by the GLP-1 revolution reshaping how the world treats obesity and metabolic disease, alongside a wave of acquisitions as large drug companies race to replenish their pipelines. Both funds have delivered extraordinary trailing-12-month returns in the same ballpark, which makes the differences between them more interesting than the headline performance numbers.
Where these funds diverge is in how they decide which pharmaceutical companies deserve a place in the portfolio. IHE follows the market's lead, weighting companies by size. PJP applies a systematic screen for value, growth, and momentum that gives smaller, potentially undervalued names more influence than their market cap alone would warrant.
That philosophical difference makes them useful for different investors. IHE is the more dependable foundation, since it's lower-cost, high-income, and anchored in the sector's most established names. PJP is worth the premium for those who want a more dynamic selection process and believe smaller pharmaceutical companies will drive the next phase of sector returns.
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Sara Appino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie, Eli Lilly, Gilead Sciences, and Pfizer. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
Which Pharmaceuticals ETF Is the Better Buy: iShares' IHE or Invesco's PJP? was originally published by The Motley Fool
