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Lior Vider
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Lior Vider, is the Founder, Owner and Chairman of www.sponser.co.il, and working as an investment portfolio manager, at Epsilon Investment House. Lior is a Registered Investment manager with the ISA (Israel Securities Authority). He has more than 13 years of experience as a investment portfolio... More
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  • Pharmaceutical Is The Best Choice In The Health Care Sector 0 comments
    Mar 30, 2014 9:11 PM | about stocks: PJP, XPH

    Summary:

    • Pharmaceutical ETFs have seen Impressive returns in the past years.
    • This is why you need to consider investing mainly in the Pharmaceutical sub-sector.
    • A good look at three Health care ETFs: PJP and XPH.

    Pharmaceutical sector, despite huge increases in the past few years, in my opinion is still a sector full of opportunities mainly due to the following facts:

    • An increase in life expectancy of the population

    • An increase in expenses on drugs

    • An increase (unfortunate) in the volume of major diseases (cancer and diabetes)

    • An increase in medical consumers in developing countries that constitutes a powerful engine for growing industry

    • An increase in new drug launches and pipeline drugs of the major ethical drug companies - some drugs are a scientific breakthrough

    • An essential increase in the volume of approvals of the FDA

    • A decrease in the volume of patent expirations (good for most ethical companies that the index consists of them)

    • An increase in revenues of drug development against orphan diseases with regulatory encouragement

    In general, the sector is not cheap and is priced at a P/E value of over 20 . However, when taking into account the revenue of the weighted principal future drugs to be watered reveals a significant decrease in the forward P/E in the coming years . Therefore, I believe that this sector will be a good investment in 2014.

    This is a list of all of the Pharmaceutical ETFs traded in the USA:

    (click to enlarge)

    These are my two preferred ETF's to invest in the Pharmaceutical sub-sector:

    PowerShares Dynamic Pharmaceuticals (PJP)

    This ETF has 30 stocks in its portfolio, The 10 top holdings are 46.51% and the currently top holding is Biogen Idec Inc (BIIB) accounting for 5.14% of its holdings. This fund carries only U.S.-based company stocks.

    PJP offers exposure to the pharmaceutical space, and it's a narrowly focused, dynamic ETF, which means it uses a quantitative index that employs proprietary screens aimed at improved security selection. The Index is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors. Over the past five years, PJP has outperformed competing pharmaceutical ETFs. For most investors, this fund probably would work best as a specialty satellite position in a diversified portfolio.

    Some of the top components include big and known companies like Merck (MRK), Bristol-Myers (BMY), Pfizer (PFE) and Johnson & Johnson (JNJ).

    PJP has an expense ratio of 0.63%. the ratio is low both in absolute terms and when compared with the typical health-care mutual fund. At the same time, it exceeds those of rival ETFs that track purely passive benchmarks.

    Fund total net assets: 1.9$ billion, Inception date - 2005

    The fund has a year-to-date return of 11.94%, a one-year return of 26.27%, a three-year return of 99.52% and a five-year return of 145.67%.

    SPDR S&P Pharmaceuticals ETF (NYSEARCA:XPH)

    This ETF has 33 stocks in its portfolio, The 10 top holdings are 42.74% and the currently top holding is Forest Laboratories, Inc. Class (NYSE:FRX) accounting for 5.49% of its holdings.

    The SPDR S&P Pharmaceuticals ETF 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.

    Some of the top components include Mylan (NASDAQ:MYL), Jazz Pharmaceuticals (NASDAQ:JAZZ), and Eli Lilly (NYSE:LLY).

    XPH has an reasonableexpense ratio of 0.35%.

    Fund total net assets: 961$ million, Inception date - 2006

    The fund has a year-to-date return of 11.94%, a one-year return of 26.27%, a three-year return of 99.52% and a five-year return of 145.67%.

    In the next article I will review the best ETFs in my opinion, for the biotechnology sector.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: PJP, XPH
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