The Healthcare ETF Showdown: Broad Global Health or Targeted Pharma Power?

Deciding between Invesco Pharmaceuticals ETF (NYSEMKT:PJP) and iShares Global Healthcare ETF (NYSEMKT:IXJ) involves choosing between a focused bet on U.S. drugmakers and broad exposure to global healthcare sectors.

While both Invesco Pharmaceuticals ETF and iShares Global Healthcare ETF are in the healthcare sector, their geographic and industry focus creates distinct risk profiles. One provides narrow exposure to the domestic drug development cycle, while the other offers a broader look at the global medical economy. This comparison examines how their costs, yields, and portfolios may impact an investor's strategy.

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 iShares Global Healthcare ETF looks more affordable with a 0.38% expense ratio, while the Invesco Pharmaceuticals ETF costs 0.58%. Additionally, the iShares fund offers a higher payout, with a yield gap of 0.42 ppt over its peer.

Performance & risk comparison

What's inside

iShares Global Healthcare ETF provides broad exposure across Pharma, Biotech & Life Sciences at 70% and Healthcare Equipment & Services at 29%. It targets companies worldwide, providing exposure across diverse markets with 109 holdings. Its largest positions include Eli Lilly (NYSE:LLY) at 10.77%, Johnson & Johnson (NYSE:JNJ) at 6.72%, and AbbVie (NYSE:ABBV) at 5.33%. It was launched in 2001. iShares Global Healthcare ETF has paid $1.44 per share over the trailing 12 months, which, on its recent ~$109.40 share price, works out to a 1.3% yield.

In contrast, Invesco Pharmaceuticals ETF focuses exclusively on the U.S. pharmaceutical industry, with 100% of its assets allocated to healthcare. The fund generally invests at least 90% of its total assets in the securities of its underlying index, which focuses on firms engaged in the research, development, and manufacture of pharmaceuticals. It is a more concentrated portfolio with 28 holdings, with top holdings including AbbVie at 5.96%, Pfizer (NYSE:PFE) at 5.83%, and Gilead Sciences (NASDAQ:GILD) at 5.82%. It was launched in 2005. Invesco Pharmaceuticals ETF has paid $1.13 per share over the trailing 12 months, which, on its recent ~$125.03 share price, works out to a 0.9% yield.

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Which looks like the better buy

When comparing the Invesco Pharmaceuticals ETF (PJP) and the iShares Global Healthcare ETF (IXJ), investors should consider several key factors. Let's see what they tell us about each fund.

First, we should examine each fund's strategy. PJP focuses on the U.S. Pharmaceuticals sector, while IXJ has a broad global strategy encompassing the entire healthcare sector. PJP holds about 30 stocks, while IXJ has more than 100. IXJ has a heavy U.S. bias, with about 73% of its exposure in the U.S. It is also tilted toward mega-caps. PJP, by contrast, uses a tiered weighting mechanism, resulting in greater relative exposure to mid-cap stocks.

Two other important factors are historical performance and income potential. Since 2021, PJP has generated a total return of 66%, equating to a compound annual growth rate (CAGR) of 10.7%. IXJ, on the other hand, has delivered a total return of 39%, with a 6.8% CAGR. As for income, PJP sports a dividend yield of 0.9%, while IXJ’s is 1.3%, giving IXJ a slight edge.

One final factor to weigh is cost. PJP has an annual expense ratio of 0.58%, while IXJ's is 0.38%. Neither fund is exceptionally affordable; however, IXJ's expense ratio is significantly less than PJP's, giving it the edge in this category.

In summary, PJP and IXJ are both healthcare ETFs, however, they focus on very different segments of the sector, and their strategies, costs, and historical performance vary. IXJ will likely be favored by cost-conscious investors or those investors seeking broad, market-cap-weighted healthcare exposure. PJP may be favored by those seeking higher returns and willing to pay higher fees in exchange.

Jake Lerch has positions in Pfizer. The Motley Fool has positions in and recommends AbbVie, Eli Lilly, Gilead Sciences, and Pfizer. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.