Is Invesco Pharmaceuticals ETF (PJP) a strong ETF right now?

Invesco Pharmaceuticals ETF (PJP) was launched on June 23, 2005 and is a smart beta exchange-traded fund designed to provide broad exposure to the healthcare ETF category in the market.

The ETF industry has traditionally been dominated by products based on market capitalization-weighted indexes, which are designed to represent a market or a specific segment of the market.

Because market-cap-weighted indexes provide a low-cost, convenient, and transparent way to replicate market returns, they work well for investors who believe in market efficiency.

On the other hand, some investors who believe they can beat the market through superior stock picking choose to invest in another class of funds that track non-cap-weighted strategies, commonly known as smart beta.

Non-capitalization weighted indices attempt to select stocks that have the best risk-return profile based on specific fundamental characteristics or a combination of other similar characteristics.

While this space provides investors with many options to choose from (such as some of the simplest methodologies such as equal weighting to more complex ones such as fundamental weighting and volatility/momentum weighting), not all of them have been able to provide top-notch results.

The fund is managed by Invesco and has managed to accumulate over $283.63 million, making it one of the mid-sized ETFs among healthcare ETFs. PJP, net of fees and expenses, strives to meet the performance of the Dynamic Pharmaceutical Intellidex Index.

The Dynamic Pharmaceutical Intellidex Index consists of US pharmaceutical stocks. It is designed to provide capital appreciation by carefully evaluating companies based on various criteria of investment attractiveness, including fundamental growth, stock valuation, investment timing and risk factors.

For ETF investors, expense ratios are an important factor when considering a fund’s performance; Over the long term, cheaper funds can actually outperform their more expensive counterparts if all other conditions remain the same.

PJP’s annualized operating expense is 0.57%, making it comparable to most peers in the industry.

The 12-month dividend yield is 0.89%.

Although ETFs offer diversified positions that minimize the risk of individual stocks, it is still important to research the fund’s holdings before investing. Fortunately, most ETFs are very transparent products that disclose their holdings on a daily basis.

PJP has the largest exposure to the healthcare sector at around 100% of the portfolio.

Taking individual holdings into account, Abbott Laboratories (ABT) accounts for about 5.61% of the fund’s total assets, followed by Abbvie Inc (ABBV) and Pfizer Inc (PFE).

PJP’s top 10 holdings account for approximately 51.24% of total assets under management.

This year, PJP’s return is approximately 15.16%, and over the past year (as of 10/31/2024), it has risen approximately 27.76%. Over the past 52-week period, the fund has traded between $68.23 and $89.33.

The fund has a beta of 0.58 and a standard deviation of 15.52% over the last three-year period, making PJP a high-risk pick in this particular space. With around 27 holdings, it has a more concentrated exposure than its peers.

The Invesco Pharmaceuticals ETF is a great option for investors looking to outperform the healthcare ETF market segment. There are other ETFs in this space that investors may also want to consider.

The IShares US Pharmaceuticals ETF (IHE) tracks the Dow Jones US Select Pharmaceuticals Index and the VanEck Pharmaceutical ETF (PPH) tracks the MVIS US Listed Pharmaceutical 25 Index. The IShares US Pharmaceuticals ETF has $629.43 million in assets and the VanEck Pharmaceutical ETF has $677.16 million in assets. IHE has an expense ratio of 0.39% and PPH has an expense ratio of 0.36%.

Investors looking for lower-cost, lower-risk options should consider traditional market-cap-weighted ETFs, which seek to match the returns of healthcare ETFs.

To learn more about this product and other ETFs, find products that suit your investment goals, and read articles about the latest developments in the ETF investing universe, visit the Zacks ETF Center.

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