Shares of drugmaker Forest Laboratories (NYSE: FRX) are up more than 29% Tuesday after the company received a $25 billion cash and stock takeover offer from generic drugmaker Actavis (NYSE: ACT).
Not that they need it, but news of the Actavis/Forest marriage is predictably proving to be a boon for pharmaceuticals exchange traded funds. Much of the strength (and valuation concern) in diversified health care ETFs such as the Health Care Select Sector SPDR (NYSEArca: XLV) dating back to last year has been attributed to the biotechnology sub-sector. [Health Care ETFs Dealing With Lofty Valuations]
That is reasonable as biotech accounts for almost 20% of XLV’s weight and four biotech stocks are found among the ETF’s top-10 holdings. Still, the XLV and rival ETFs remain pharmaceuticals heavy. Pharmaceuticals names account for 45% of XLV’s weight and the ETF allocates 11.7% of its weight to Johnson & Johnson (NYSE: JNJ), more than its combine weight to Gilead (NasdaqGM: GILD) and Amgen (NasdaqGM: AMGN).
S&P Capital IQ data point out that only a small number of ETFs feature Forest among their top-10 holdings, but there are a few dedicated pharma ETFs that are getting big boosts on news of the Actavis takeover.
The $616 million iShares U.S. Pharmaceuticals ETF (NYSEArca: IHE) is up 3.4% today on volume that is already above the daily average thanks to a combined 8.7% weight to Actavis and Forest. The stock’s are IHE’s seventh- and eighth-largest holdings, respectively. IHE, which celebrates its eighth anniversary in May, hit an all-time high today.
The $851 million SPDR Pharmaceuticals ETF (NYSEArca: XPH) is constructed as an equal-weight pharma ETF and it is equally-weighted the right way as Forest and Actavis, XPH’s fifth- and seventh-largest holdings, combine for 8% of the ETF’s weight. That is enough to have XPH, which hit a new all-time high earlier today, up 4.6%. [Fun With Pharma ETFs]
Do not forget the smart beta PowerShares Dynamic Pharmaceuticals Portfolio (NYSEArca: PJP). The $1.1 billion PJP holds just 29 stocks, but two of them are Forest and Actavis, which combine for 6.7% of the ETF’s weight.
PJP also hit an all-time high earlier Tuesday and is up 3.1% at this writing. The ETF has brought in almost $107.1 million in new assets this year, making it the fourth-best PowerShares in terms of 2014 inflows, according to issuer data.
SPDR Pharmaceuticals ETF
