Which Pharmaceutical ETF Is Better, VanEck's PPH or Invesco's PJP?

The VanEck Pharmaceutical ETF (NASDAQ:PPH) offers a more cost-efficient entry point and higher income potential, while the Invesco Pharmaceuticals ETF (NYSEMKT:PJP) has recently demonstrated stronger price appreciation for investors seeking sector momentum.

These exchange-traded funds both target the U.S. pharmaceutical space, but they differ significantly in their construction and cost structures. While both funds capture the industry focus on drug development and research, their varying concentration levels and fees can lead to diverging outcomes for long-term shareholders.

Snapshot (cost & size)

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

The VanEck fund is the more affordable choice with a 0.36% expense ratio, saving investors 0.21 percentage points compared to the Invesco fund. It also provides a higher dividend payout for income-oriented portfolios, which may help offset some of the volatility inherent in the healthcare sector.

Performance & risk comparison

What's inside

The VanEck Pharmaceutical ETF focuses exclusively on the healthcare sector with 26 holdings, seeking to replicate the MVIS US Listed Pharmaceutical 25 Index. Its largest positions include Eli Lilly & Co (NYSE:LLY) at 20.24%, Novartis (NYSE:NVS) at 10.63%, and Merck & Co (NYSE:MRK) at 9.85%. It was launched in 2011. The VanEck Pharmaceutical ETF has paid $2.15 per share over the trailing 12 months, which on its recent ~$109.35 share price works out to a 2.00% yield.

The Invesco Pharmaceuticals ETF also maintains 100% healthcare exposure but spreads its capital across 29 holdings through a non-diversified approach. Its largest positions include Eli Lilly & Co at 5.22%, Abbott Laboratories (NYSE:ABT) at 5.16%, and AbbVie (NYSE:ABBV) at 5.14%. It was launched in 2005. Invesco Pharmaceuticals ETF has paid $1.06 per share over the trailing 12 months, which on its recent ~$118.45 share price works out to a 0.90% yield.

For more guidance on ETF investing, check out the full guide at this link.

What this means for investors

For those seeking to invest in the pharma industry, the VanEck Pharmaceutical ETF (PPH) and Invesco Pharmaceuticals ETF (PJP) are two compelling choices. There is overlap in their holdings, so choosing which one to invest in comes down to a handful of considerations.

A key difference is that PPH provides global exposure. The U.S. comprises 62% of its holdings with the remainder in international markets. This means it is subject to the impact of foreign taxes and currency exchange rates. While it didn’t deliver as strong a one-year return as PJP, it’s lower expense ratio and higher dividend yield make a potent combination that contributed to its greater growth over five years. It also sports a much larger AUM, which translates into superior liquidity.

PJP’s holding are comprised entirely of U.S. stocks. When the U.S. pharma industry is doing well, such as with the advent of the GLP-1 weight loss revolution, it reflects in PJP’s performance. The downsides are its high expense ratio and far lower dividend yield.

In weighing the differences, PPH is ideal for income-oriented investors. PJP is for those who want to focus on the U.S. market and are willing to pay more for that exposure.

Robert Izquierdo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie, Abbott Laboratories, Eli Lilly, and Merck. The Motley Fool has a disclosure policy.