XPH vs PJP: Which Pharma ETF Offers Better Value

Invesco Pharmaceuticals ETF (NYSEMKT:PJP) provides a concentrated, low-volatility approach to drug manufacturers, while the State Street SPDR S&P Pharmaceuticals ETF (NYSEMKT:XPH) offers broader sector exposure at a significantly lower annual cost.

Pharmaceutical stocks often attract investors looking for a blend of defensive dividends and growth potential from medical innovation. This comparison looks at two popular ways to access the sector, examining how their different weighting strategies and cost structures could impact long-term portfolio performance and risk.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The State Street fund is notably more affordable with a 0.35% expense ratio, saving investors 22 basis points compared to the Invesco fund. However, the Invesco fund may appeal to income seekers with its slightly higher 0.8% payout.

Performance & risk comparison

What's inside

Launched in 2005, the Invesco Pharmaceuticals ETF holds a lean portfolio of 29 companies, focusing on established players in the healthcare sector. Its largest positions include Abbott Laboratories (NYSE:ABT) at 5.67%, AbbVie (NYSE:ABBV) at 5.48%, and Amgen (NASDAQ:AMGN) at 5.34%. The fund maintains 100% exposure to the healthcare sector and operates without any leverage or environmental, social, and governance (ESG) filters. This ETF has paid $1.06 per share over the trailing 12 months, which, on its recent ~$124.66 share price, works out to a 0.8% yield.

Launched just one year later in 2006, the State Street SPDR S&P Pharmaceuticals ETF provides broader exposure with 65 holdings, though it also concentrates 100% on the healthcare sector. Its top holdings include Crinetics Pharmaceuticals (NASDAQ:CRNX) at 3.69%, MBX Biosciences (NASDAQ:MBX) at 3.22%, and AtaiBeckley (NASDAQ:ATAI) at 2.88%. Because it tracks an equal-weighted index, it leans more into midsized companies and smaller innovators than its Invesco counterpart. This ETF has paid $0.34 per share over the trailing 12 months, which, on its recent ~$69.98 share price, works out to a 0.5% yield.

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Which looks like the better buy?

Both ETFs focus solely on domestic pharmaceutical companies within the broader healthcare sector, and their assets under management are very similar. Beyond that, they vary greatly. When determining which is the better buy for you today, there are a couple of things to consider.

The Invesco fund's tight focus on well‑established industry leaders contributes to its lower volatility, a milder five‑year drawdown, and stronger five‑year total return. It also sports a higher dividend yield. However, it costs more not only to own this fund (a 0.57% expense ratio versus the SPDR's 0.35%) but also to purchase shares; Invesco currently trades at almost double the SPDR's price. For investors seeking steadier performance from more established holdings, this fund may be a better fit.

Alternatively, SPDR's equal‑weighted strategy gives mid‑cap and small‑cap innovators the same influence as large, established drugmakers. This can lead to more volatile swings, as single events, such as individual trial results, can more meaningfully move the entire ETF. For investors seeking higher growth potential and who can tolerate greater volatility, this structure may be appealing.

Ultimately, the choice depends on what you're seeking as an investor. The Invesco Pharmaceuticals ETF may be a better investment for long-term, income-focused investors with a lower risk tolerance. In contrast, the State Street SPDR S&P Pharmaceuticals ETF may be better for growth-oriented investors with a higher tolerance for risk and a longer-term time horizon.

Laura Roberts has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie, Abbott Laboratories, and Amgen. The Motley Fool has a disclosure policy.