Which Pharmaceutical ETF Is the Better Buy: iShares’ Domestic IHE or VanEck’s Global PPH?

The iShares U.S. Pharmaceuticals ETF (NYSEMKT:IHE) offers concentrated domestic exposure and higher recent returns, while the VanEck Pharmaceutical ETF (NASDAQ:PPH) provides a global tilt with a slightly higher dividend yield.

Investors seeking exposure to the pharmaceutical sector often choose between these two established funds. Both target the same industry but differ significantly in geographic reach and portfolio concentration. While the iShares fund focuses exclusively on the United States, the VanEck fund casts a wider net across international markets.

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 VanEck Pharmaceutical ETF is slightly more affordable with a 0.36% expense ratio compared to 0.37% for the iShares fund. Additionally, the VanEck fund may appeal to income-seeking investors given its higher payout with a yield of 1.9%.

Performance & risk comparison

What's inside

VanEck Pharmaceutical ETF provides 100% exposure to the healthcare sector across 26 holdings. Its largest positions include Eli Lilly (NYSE:LLY) at 21.11%, Merck (NYSE:MRK) at 13.19%, and Novo Nordisk (NYSE:NVO) at 5.50%. The fund was launched in 2011. VanEck Pharmaceutical ETF has paid $2.14 per share over the trailing 12 months, which on its recent ~$114.11 share price works out to a 1.9% yield.

The iShares U.S. Pharmaceuticals ETF is also entirely dedicated to pharmaceuticals, though it maintains a broader portfolio of 53 holdings. Its top holdings include Eli Lilly at 25.24%, Johnson & Johnson (NYSE:JNJ) at 21.50%, and Zoetis Inc Class A (NYSE:ZTS) at 4.85%. The fund was launched in 2006. iShares U.S. Pharmaceuticals ETF has paid $1.43 per share over the trailing 12 months, which on its recent ~$101.12 share price works out to a 1.4% yield.

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Which looks like the better buy

Pharmaceutical stocks have been one of the most rewarding places to invest over the past year, and the reason is not hard to find. Eli Lilly's GLP-1 drugs have reshaped how the world thinks about obesity and metabolic disease, and IHE holds Eli Lilly as its largest position. That single tailwind has powered IHE to extraordinary trailing-12-month returns, leaving PPH's more globally distributed portfolio in the dust.

PPH has its merits. Its global reach is a true differentiator, as it includes European pharmaceutical giants like Novartis and AstraZeneca that IHE skips entirely. That international exposure has historically provided ballast when U.S. drug makers underperform. And European pharmaceutical companies have a long history of returning cash to shareholders, which is why PPH pays out more income than its U.S.-focused rival.

These funds charge nearly identical fees. IHE is the stronger recent performer and the more direct way to own the GLP-1 story. PPH is the better fit for investors who want global pharmaceutical diversification and a higher income stream, and who are comfortable accepting that the next Eli Lilly moment could come from anywhere in the world.

Sara Appino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AstraZeneca Plc, Eli Lilly, Merck, Novo Nordisk, and Zoetis. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.