It has been another strong year for exchange traded funds that follow the health care sector, the best performer in the S&P 500 in 2014, and ETFs dedicated to the pharmaceuticals industry have been no exception.
As is the case with biotechnology ETFs, pharmaceuticals ETFs offer investors multiple choices that are far from carbon copies of each other. There are traditional cap-weighted pharma ETFs, equal-weight offerings as well as strategic beta funds.
The PowerShares Dynamic Pharmaceuticals Portfolio (NYSEArca: PJP) fits the bill as a strategic beta ETF. More importantly, PJP fits the bill as an impressive pharma ETF. PJP is up almost 18% year-to-date and resides just pennies below its all-time reached several weeks ago. Over the past 90 days, PJP is up 6.3%, making it the best performer among the major dedicated pharma ETFs. Those are not small feats when acknowledging pharmaceuticals makers took their lumps during the March/April biotechnology swoon. [Sign up for This Pharma ETF]
PJP’s bullishness is not new. Over the past three years, the ETF has returned 161.4% while its three main rivals posted an average return of 116%.
“With PJP and other “smart” indexes, there’s no way to know what the portfolio will look like in several months time, let alone several years. Either the index works, and outperforms, or it doesn’t. Given the track record of PJP, it appears the Intellidex strategy works in the pharmaceutical sector,” notes Matthew Sauer on Seeking Alpha.
PJP tracks the Dynamic Pharmaceutical Intellidex Index which evaluates companies for inclusion based on “price momentum, earnings momentum, quality, management action, and value,” according to PowerShares.
While PJP is home some of the largest and most familiar biotech and pharma stocks, including Dow components Johnson & Johnson (NYSE: JNJ) and Pfizer (NYSE: PFE) along with Amgen (NasdaqGS: AMGN), Gilead Sciences (NasdaqGS: GILD) and Celgene (NasdaqGS: CELG), the ETF also allocates almost 29% of its weight to small-cap stocks, putting it in position to benefit from increasing mergers and acquisitions activity in the health care sector. [Index Changes Benefit PowerShares ETFs]
PJP has already benefited from pharma M&A this year, having held a stake in drugmaker Forest Laboratories (NYSE: FRX) at the time Actavis (NYSE: ACT), currently a member of the ETF’s lineup, acquire the firm. PJP also allocates nearly 3% to Salix Pharmaceuticals (NasdaqGS: SLXP), company widely rumored to be takeover candidate. [Forest Deal A Boon for Pharma ETFs]
“PJP offers a “smart” index strategy for passive investors who don’t want to analyze which of the other three funds are best positioned to outperform in the next year. However, given its track record, which of course does not guarantee future results, PJP also makes a strong argument that it is the best of the group for long-term investors,” adds Sauer.
Investors like what PJP has to say. The ETF has added nearly $119 million of its $1.2 billion in assets under management this year.
PowerShares Dynamic Pharmaceuticals Portfolio
