Best Pharma ETFs by Performance

See details on the top-performing pharma ETFs and the benefits and risks of investing.

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Kent Thune
Reviewed by: Kent Thune
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Edited by: Kent Thune

Some of the top-performing pharmaceutical ETFs produced gains in 2022 while the broader stock market, as measured by the S&P 500 index, dropped by more than 18%. Which funds will be the best pharma ETFs in 2023? 

We provide details on the top-performing pharma ETFs, as measured by one-year returns through February 28, 2023, as well as the benefits and risks of investing. 

Benefits and Risks of Pharmaceutical ETFs 

Pharmaceutical ETFs offer several benefits, including diversification, access to a range of companies and the potential for long-term growth. However, like any investment, pharmaceutical ETFs come with risks that investors should understand before buying shares. 

Benefits of Investing in Pharmaceutical ETFs 

  • Diversification: Pharmaceutical ETFs invest in a basket of companies within the pharmaceutical industry. This provides investors with exposure to a wide range of companies, reducing the risk of any single company impacting the performance of the portfolio. Diversification is a key component of a well-rounded investment strategy, and ETFs offer an easy and efficient way to achieve it. 
  • Access to a range of companies: Investing in a pharmaceutical ETF gives investors access to a broad range of companies, including large cap pharmaceutical giants, mid-cap biotech firms and small cap drug development companies. This provides exposure to the full spectrum of the pharmaceutical industry, from established players with stable earnings to high-growth companies developing cutting-edge treatments. 
  • Potential for long-term Growth: The pharmaceutical industry is expected to continue to grow as the global population ages and demand for health care services increases. This presents a long-term growth opportunity for investors who are willing to hold their investments for several years. 

Risks of Investing in Pharmaceutical ETFs 

  • Regulatory risk: The pharmaceutical industry is heavily regulated, and changes in regulations can impact the performance of pharmaceutical ETFs. For example, if a regulatory agency rejects a drug application, it could significantly impact the stock price of the company that developed the drug, as well as the ETF that holds that company's stock. 
  • Clinical trial risk: Investing in pharmaceutical ETFs comes with the risk that clinical trials may not produce the desired results. If a company's drug does not meet its primary endpoint in a clinical trial, it could result in a significant decline in the stock price, and subsequently, the ETF's performance. 
  • Patent cliff risk: The pharmaceutical industry is subject to the risk of the "patent cliff," which occurs when a company's patent on a profitable drug expires, allowing generic competitors to enter the market. This can significantly impact the company's revenue and, as a result, the ETF's performance. 
  • Concentration risk: While pharmaceutical ETFs offer diversification, they are still subject to concentration risk. This means that if the ETF holds a significant amount of shares in a single company or a small number of companies, it could significantly impact the ETF's performance if that company or companies experience significant changes in stock price. 

Best Pharma ETFs by Performance 

To arrive at our list of best pharma ETFs by performance, we started with our own pharmaceutical ETFs channel. We then ranked our finalists by one-year returns. We did not include leveraged ETFs. For deeper reference, we include each fund’s AUM and expense ratio.

The five best pharmaceutical ETFs, as measured by one-year returns, are: 

Ticker Fund 1-yr Return AUM Expense Ratio
FTXH First Trust Nasdaq Pharmaceuticals ETF 5.22% $41.23M 0.60%
PJP Invesco Dynamic Pharmaceuticals ETF 1.58% $319.74M 0.58%
PPH VanEck Pharmaceutical ETF 1.51% $405.57M 0.36%
IHE iShares U.S. Pharmaceuticals ETF -2.14% $392.97M 0.39%
XPH SPDR S&P Pharmaceuticals ETF -3.10% $222.82M 0.35%

First Trust Nasdaq Pharmaceuticals ETF 

The First Trust Nasdaq Pharmaceuticals ETF (FTXH) tracks the 30 most liquid U.S. pharmaceutical companies, weighted according to factors related to value, volatility and growth. FTXH goes beyond the basic screening of the typical ETF and uses liquidity for selection. The 30 most liquid pharmaceutical stocks in the U.S. are chosen for inclusion in the index as determined by three-month average daily traded volume.  

  • One-year return: 5.22% 
  • Assets under management: $41.23M 
  • Expense ratio: 0.60% 
  • As of date: February 28, 2023 

Invesco Dynamic Pharmaceuticals ETF 

The Invesco Dynamic Pharmaceuticals ETF (PJP) tracks an index of U.S. pharmaceutical companies selected and weighted based on various factors using a quantitative methodology. Specifically, the fund holds about 30 U.S. stocks that are evaluated based on five factors: price momentum, earnings momentum, quality, management action and value. 

  • One-year return: 1.58% 
  • Assets under management: $319.74M 
  • Expense ratio: 0.58% 
  • As of date: February 28, 2023 

VanEck Pharmaceutical ETF 

The VanEck Pharmaceutical ETF (PPH) tracks a market-cap-weighted index of 25 of the largest U.S.-listed multinational pharmaceutical giants in the world. The fund holds just 25 securities, including big weights in household names. Like the underlying pharmaceutical market, PPH is top heavy and must reweight its big holdings to accommodate Regulated Investment Company (RIC) diversification requirements, capping a single issuer to 20%. 

  • One-year return: 1.51% 
  • Assets under management: $405.57M 
  • Expense ratio: 0.36% 
  • As of date: February 28, 2023 

iShares U.S. Pharmaceuticals ETF 

The iShares U.S. Pharmaceuticals ETF (IHE) tracks a broad-based, cap-weighted index of U.S. pharmaceutical companies. IHE provides exposure to the manufacturers of prescription or over-the-counter drugs, such as aspirin, cold remedies and birth control pills. The index also includes vaccine producers and may include companies of all sizes, ranging from large to small cap. 

  • One-year return: -2.14% 
  • Assets under management: $392.97M 
  • Expense ratio: 0.39% 
  • As of date: February 28, 2023 

SPDR S&P Pharmaceuticals ETF 

The SPDR S&P Pharmaceuticals ETF (XPH) tracks an equal-weighted index of U.S. pharmaceutical companies, providing exposure across all market caps. XPH's weighting scheme causes it to be far less concentrated than the industry, which is dominated by a handful of mega cap names like J&J, Pfizer and Merck. 

  • One-year return: -3.10% 
  • Assets under management: $222.82M 
  • Expense ratio: 0.35% 
  • As of date: February 28, 2023 

Bottom Line 

Pharmaceutical ETFs offer investors a way to gain exposure to the pharmaceutical industry, diversify their portfolio, and potentially benefit from long-term growth. However, investing in pharma ETFs comes with risks, including regulatory, clinical trial, patent cliff, and concentration risks.  

As with any investment, investors should carefully consider the potential benefits and risks of pharma ETFs before buying shares. 

Kent Thune

Kent Thune is a finance writer for etf.com, focusing on educational content. Before coming to etf.com, he wrote for numerous investment websites, including Seeking Alpha and Kiplinger. Thune is also a practicing Certified Financial Planner and investment advisor based in Hilton Head Island, SC, where he lives with his wife and two sons.