Best Pharmaceutical ETFs of 2023

The best pharmaceutical ETFs were market laggards early in 2023, as investor fears over government-mandated drug price caps kept downward pressure on multiple big pharma stocks. By Q2, pharma ETFs were back in the green as investors began to see less negative impact from drug price negotiations. 

In this article, we take a new look at the top-performing pharma ETFs in 2023 and provide an outlook for 2024.

What Is a Pharmaceutical ETF?

A pharmaceutical ETF, or pharma ETF, is a type of exchange-traded fund that is specifically designed to track the performance of publicly traded pharmaceutical company stocks. The pharmaceutical industry is a subset of the broader healthcare sector and focuses primarily on companies involved in the research, development, manufacturing, and distribution of pharmaceutical drugs and medications.

5 Best Pharmaceutical ETFs for 2023 Performance 

VanEck Pharmaceutical ETF 

The VanEck Pharmaceutical ETF (PPH) tracks a market-cap-weighted index of the largest U.S.-listed multinational pharmaceutical giants in the world. The fund holds just 25 securities, including big weights in big pharma names. Like the underlying pharmaceutical market, PPH is top heavy with heavier exposure to the top holdings, such as Eli Lilly and Johnson & Johnson.

• One-year return: 5.69% 
• Assets under management: $435.29M 
• Expense ratio: 0.36% 
• As of date: September 21, 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: 0.20% 
• Assets under management: $205.10M 
• Expense ratio: 0.35% 
• As of date: September 21, 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: -1.44% 
• Assets under management: $380.67M 
• Expense ratio: 0.40% 
• As of date: September 21, 2023 

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: -4.23% 
• Assets under management: $21.09M 
• Expense ratio: 0.60% 
• As of date: September 21, 2023 

Invesco 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: -5.54% 
• Assets under management: $279.35M 
• Expense ratio: 0.58% 
• As of date: September 21, 2023 

Pharma ETFs: Outlook for 2024

Pharmaceutical ETFs may continue the mid-2023 positive momentum into 2024 if the government mandated price caps on blockbuster drug companies don't affect profits for big pharma as much as it first appeared. Some analysts believe risk exposure may be too low to make a significant negative impact on bottom lines. Furthermore, pharmaceutical stocks are generally considered defensive investments, which means that a slower economy in 2024 could make the healthcare sector a market leader.