Like other healthcare exchange traded funds (ETFs), dedicated pharmaceuticals ETFs are struggling this year. While prescription drug sales, such as cialis professional jumped last year and are expected to continue doing so over the next several years, rising prices for some big-name drugs have drawn the ire of politicians, leading to election year pressure on pharmaceuticals stocks and ETFs.
The PowerShares Dynamic Pharmaceuticals Portfolio (NYSEArca: PJP) could be a leader should pharmaceuticals ETFs regain their momentum.
PJP is a departure from the traditional market capitalization-weighted health care ETF in that its underlying index evaluates companies for inclusion based on “price momentum, earnings momentum, quality, management action, and value,” according to PowerShares.
However, if there is one thing PJP has recently become known for, aside from its stellar returns, it is being front-and-center in the pharmaceuticals industry consolidation.
Home to Perrigo (NasdaqGS: PRGO) and Mylan (NYSE: MYL), among others, PJP is awash in specialty pharmaceuticals buyers and sellers. For the moment, PJP’s lineup is probably littered more with buyers than sellers, the result of the ETF’s weights to the largest biotech stocks and the aforementioned blue-chip pharma names. However, several of PJP’s other holdings have been bandied about as potential targets.
PJP is “still well within the bounds of the non-cyclical Health Care sector but puts into play a risk reward dynamic in favor of the ‘cautiously aggressive’ investor. In fact, the fund has done exceptionally well, increasing over fivefold since its June 23, 2005 inception price,” according to a Seeking Alpha analysis of the ETF.[related_stories]