IHE has a more spread out allocation, with 44.7% mega-caps, 11.2% large-caps, 13.6% mid-caps and 24.9% small-caps. IHE holds 2.7% in JAZZ.
Due to its more equal-weight methodology, XPH includes a bigger tilt toward smaller companies, including 12.2% micro-caps, 41.9% small-caps and 17.1% mid-caps, along with 20.4% mega-caps and 8.4% large-caps. The ETF has 2.8% in JAZZ.
RBC’s Randall Stanicky and James Chen believe that more buyers going after fewer sellers will also force pharmaceutical companies to acquire smaller firms like Akorn (NasdaqGS: AKRX), Flexion Therapeutics (NasdaqGS: FLXN) and Agile Therapeutics (AGRX).
“We continue to expect smid cap specialty to outperform on our simple thesis that there is more consolidator capital chasing fewer high quality assets in the sector,” according to the RBC analysts.
ETFs with a larger tilt toward smaller companies will have a better chance on capturing the sudden spikes in response to takeover bids. For instance, AKRX makes up 2.6% of XPH, 3.3% of PJP and 1.6% of IHE. [M&A Activity Will Continue to Support Market Sectors, ETFs in Next Rate Hike]
Additionally, investors interested in smaller companies in the growing industry can take a look at the ALPS Medical Breakthroughs ETF (NYSEArca: SBIO), which targets companies that have new drugs going through clinical trials. SBIO holds 3.9% AKRX and 0.4% FLXN.
For more information on the healthcare sector, visit our healthcare category.
Max Chen contributed to this article.