Big Pharma vs. Breakthrough Biotech: Which ETF Has More Upside for Investors?

The Invesco Pharmaceuticals ETF (NYSEMKT:PJP) offers a lower-volatility approach to healthcare than the Invesco Biotechnology & Genome ETF (NYSEMKT:PBE), which prioritizes high-growth but more volatile firms specializing in genomic research and biochemical engineering.

Investors seeking healthcare exposure often choose between established pharmaceutical giants and high-stakes biotechnology innovators. While both funds are issued by Invesco and focus exclusively on domestic companies, their distinct sub-industry concentrations lead to significantly different risk profiles and historical total return outcomes for long-term shareholders.

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.

These funds are priced nearly identically, with only a one-basis-point difference in their annual expense ratios. However, the Invesco Biotechnology & Genome ETF provides a more substantial income component, offering a trailing dividend yield approximately 0.5 percentage points higher than its pharmaceutical-focused sibling.

Performance & risk comparison

What's inside

Invesco Pharmaceuticals ETF generally invests at least 90% of its assets in the 28 U.S. pharmaceutical companies that make up its underlying index. These companies are primarily engaged in the research, development, and distribution of various drugs. Its largest positions include AbbVie, Inc. (NYSE:ABBV) at 5.98%, Pfizer, Inc. (NYSE:PFE) at 5.79%, and Gilead Sciences, Inc. (NASDAQ:GILD) at 5.78%. The fund was launched in 2005. It has paid $1.13 per share over the trailing 12 months, which on its recent ~$125.1 share price works out to a 0.9% yield.

Invesco Biotechnology & Genome ETF similarly allocates 90% of its assets to 32 U.S. companies. It uses a dynamic index that evaluates firms based on price momentum, earnings growth, and management decisions within the biotech sector. Its top holdings include Natera, Inc. (NASDAQ:NTRA) at 6.05%, Illumina, Inc. (NASDAQ:ILMN) at 5.95%, and Biogen, Inc. (NASDAQ:BIIB) at 5.39%. It was launched in 2005. It has paid $1.33 per share over the trailing 12 months, which on its recent ~$98.7 share price works out to a 1.34% yield.

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Which looks like the better buy

The emerging biotech companies held by the Invesco Biotechnology & Genome ETF offer plenty of appeal, particularly for investors looking to capitalize on the next major medical breakthrough. However, when considering the returns each fund has generated and the volatility investors have endured along the way, the Invesco Pharmaceuticals ETF looks like the better buy.

The biotechnology fund does offer a higher dividend yield of 1.4%, compared to 0.9% for its pharmaceutical counterpart, which is worth considering for income-focused investors. However, with nearly identical expense ratios, considerably less volatility, and a similar historical return profile, the Invesco Pharmaceuticals ETF offers a more balanced approach to capturing growth in healthcare with smaller drawdowns along the way.

While emerging biotech companies attract attention for their cutting-edge research and potential breakthroughs, established pharmaceutical giants are hardly sitting on the sidelines. Companies like Pfizer and AbbVie have the financial resources, research capabilities, and established operations to continue developing innovative treatments for years to come.

For long-term investors, the Invesco Pharmaceuticals ETF gets the nod. The potential upside of emerging biotech is attractive, but established pharmaceutical companies offer a compelling combination of innovation, financial stability, and a historically smoother ride for shareholders.

RJ Fulton has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie, Gilead Sciences, Illumina, Natera, and Pfizer. The Motley Fool recommends Biogen. The Motley Fool has a disclosure policy.