A Low-Cost Pharma Fund for Drug Sector Exposure

08/19/2020 5:00 am EST

Focus: HEALTHCARE

Jim Woods

Editor, Successful Investing, Intelligence Report

The SPDR S&P Pharmaceuticals ETF (XPH) tracks an equal-weighted index of U.S. pharmaceutical companies, explains exchange-traded fund expert Jim Woods, editor of The Deep Woods.

The exchange-traded fund 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 (JNJ), Pfizer Inc. (PFE) and Merck (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 (HZNP), 6.80%; Catalent Inc. (CTLT), 5.22%; Jazz Pharmaceuticals Plc (JAZZ) 4.96%; Zoetis, Inc. Class A (ZTS), 4.88%; and Pfizer Inc. (PFE) 4.69%. Plus, the fund is heavily weighted in pharmaceuticals (55.02%), biotherapeutic drugs (21.5%) and veterinary drugs (9%).

xph

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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