Use Pharmaceutical ETFs to Invest in the Pharma Sector

pahrma etf

The pharmaceutical industry contains many large and powerful companies. Ongoing advancements in medicine lead to new drugs being tested and created each day. But in some cases, these companies produce medications that have recalls, dangerous side effects, or fail to produce results as advertised.

Key Takeaways

  • The size and volatility of the pharmaceutical sector can lead to many profitable trading opportunities.
  • Be sure to research a few pharmaceutical ETFs to see if they make sense for your portfolio.
  • ETFs come with many advantages over mutual funds. These include lower fees, easier transactions than indexes, and better sector diversification than individual stocks.

Why ETFs?

As an investor, the size and volatility of the pharma sector can lead to many profitable trading opportunities. If you feel that your portfolio could benefit from some exposure to this sector, you can invest in this industry in a few different ways.

You might consider buying individual pharma company stocks. Perhaps this is an index, or even a mutual fund that targets certain niches or samples the overall sector. But you won't want to miss out on the potential benefits of exchange-traded funds (ETFs). Be sure to research a few pharmaceutical ETFs to see if they make sense for you.

ETFs come with many advantages over mutual funds. These include lower fees, easier transactions than indexes, and better sector diversification than individual stocks. They also offer tax benefits, such as lower capital gains taxes due to less trading within the fund.

If you're looking for instant exposure to the pharma sector with one simple transaction, a pharmaceutical ETF may be the way to go.

To help you do some research to make a more informed decision, the following list includes a selection of pharma ETFs to help you get started. Take the time to check out each fund. That way, you can figure out which might be right for you.

IHE: iShares Dow Jones US Pharmaceuticals ETF

This pharma ETF tracks the Dow Jones U.S. Select Pharmaceuticals Index, and some of the top holdings include Pfizer, Johnson and Johnson, and Merck.

PJP: Invesco Dynamic Pharmaceuticals ETF

This pharmaceutical ETF follows the Dynamic Pharmaceuticals Intellidex Index. Some of the top holdings in this fund are Amgen, Gilead Sciences, Pfizer, and Merck.

XPH: SPDR S&P Pharmaceuticals ETF

This SPDR correlates with the S&P Pharmaceuticals Select Industry Index (SPSIPHTR). This ETF's top holdings include Jazz Pharmaceuticals, Eli Lilly, and Merck. 

Do Your Due Diligence

Before making any trades, make sure to consult your financial advisor, your broker or a financial professional. Research each pharma ETF individually and have a good feel for how the funds work and how they react to different market conditions.

As with any investment (ETF or otherwise), conduct the due diligence necessary to make the right decisions based on your risks and your goals. No investment is risk-free, so make sure you are aware of the pros and cons of any trade or in this case pharmaceutical ETF.

If you’re looking for some related ETFs, the following two lists can get you started. The first list includes healthcare ETFs, along with an additional list of biotechnology ETFs.

List of Health Care ETFs

  • CURE: Direxion Daily Health Care Bull 3X Shares ETF
  • FXH: First Trust Health Care Alpha DEX ETF
  • IHF: iShares Dow Jones US Health Care Provider ETF
  • IXJ: iShares S&P Global Health Care Sector ETF
  • IYH: iShares Dow Jones US Health Care ETF
  • PTH: Power Shares Dynamic Health Care ETF
  • RXD: Ultra Short Health Care Pro Shares ETF
  • RXL: Ultra Health Care Pro Shares ETF
  • RYH: Rydex S&P Equal Weight Health Care ETF
  • VHT: Vanguard Health Care ETF
  • XHE: SPDR S&P Health Care Equipment ETF
  • XHS: SPDR S&P Health Care Services ETF

List of BioTechnology ETFs

  • BBH: VanEck Vectors Biotech ETF
  • BIB: Ultra NASDAQ Biotechnology ETF
  • BIS: Ultra Short NASDAQ Biotechnology ETF
  • FBT: First Trust NYSE Arca Biotech Index ETF
  • IBB: iShares Nasdaq Biotechnology ETF
  • PBE: Power Shares Dynamic Biotech & Genome ETF
  • XBI: SPDR S&P Biotech ETF