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VanEck Pharmaceutical ETF (NASDAQ:PPH) is a popular way for investors to own some of the leading pharmaceutical companies and get diversification and liquidity at the same time. This ETF has about $488 million in assets, and it has an expense ratio of 0.36%. There are a number of positives I see with starting a position in this ETF now, and it offers solid long term historical performance.
The Chart
As the chart below shows, this ETF has been in an uptrend since late last year, and it recently traded above $90. However, it has experienced a pullback along with the rest of the market, and it now trades for about $85 per share. I think this is a level where it starts to make sense to do some buying. The 50-day moving average is around $88, and the 200-day moving average is $81.82. I plan on buying small amounts now and going in for larger purchases, if this ETF hits the 200-day moving average, which is typically a strong support level.
StockCharts.com
Top 10 Holdings
SeekingAlpha.com
Let’s take a closer look at the top 3 holdings for this fund:
Eli Lilly (LLY) is the top holding at around 12% of the total portfolio. This company has seen its stock surge due to the success of its weight-loss drug. I feel the valuation is stretched, and I don’t expect this stock to perform as well going forward.
Novo Nordisk (NVO) shares have also surged thanks to its version of a successful weight loss drug. This stock represents about 9.6% of the total portfolio. I think this stock could be due for a bigger pullback as well, and that could help provide a better buying opportunity for this ETF.
Johnson & Johnson (JNJ) is a leading healthcare company. This stock represents about 6.55% of the total portfolio. This stock has been disappointing investors for a while now as it deals with talcum powder lawsuits and other issues that have weighed on its valuation. However, I think this stock will rebound going forward and could help fuel strong long-term performance for this ETF in the future.
Positive Factors And Upside Catalysts
There are a number of reasons why this ETF could be an attractive long-term holding for almost any portfolio.
1) The population is growing, and it is aging. People are also living longer than ever. This should keep demand for pharmaceuticals strong for decades to come.
2) Pharmaceutical stocks tend to be defensive during economic downturns and after many years of economic growth, it could be smart to allocate a portion of any portfolio away from fast-growing tech (highflyers) and into more steady and defensive sectors, like pharmaceuticals.
3) AI could be a hugely beneficial factor for the pharmaceutical industry in the coming years. Generative AI is expected to enable more efficient and cost-effective clinical trials, which should also lead to expedited regulatory approvals. It could also improve the way treatments are marketed. The McKinsey Global Institute estimates that Generative AI could produce $60 billion to $110 billion annually in value for the pharmaceutical industry.
McKinsey & Company
A History Of Solid Long-Term Total Returns
This fund has had a 4 star rating from Morningstar over the past 5 years and a 5 star rating over the past 3 years. A $10,000 investment in this ETF made at its inception on December 20, 2011, would now be worth over $30,000. Over the past 5 years, it has provided an annualized return of about 10.36% and since inception, it has provided an annualized return of just over 10%.
The Dividend
This ETF has a current 30-day SEC yield of 2.04%. It pays a quarterly dividend of around $0.5328 per share, and it paid the last quarterly dividend on April 5, 2024. This dividend is likely to become more attractive when rates drop over the next couple of years, and it plays an important role in providing total returns.
Potential Downside Risks
This ETF has had a strong run over the past few months, so it is not surprising to see a pullback. It might continue to drop and that is why I would not get fully invested immediately, but rather over time. A bigger decline could be in the works if drug pricing becomes a major issue, since this is an election year. Politicians love to talk about lowering drug costs when they are campaigning. This is a potential downside risk and another reason why I would gradually scale into this ETF. Clinical trial failures and patent expirations are another risk factor impacting this sector. That is why it could be preferable to invest in this industry with the diversification that an ETF offers, rather than take on the risk of single stock exposure.
In Summary
The pullback in this ETF has provided a better buying opportunity, but there still could be additional downside due to the market dropping recently and also because of election year politics. However, the future looks bright for this sector as demand should stay strong due to demographics along with the benefits of Generative AI. This ETF has produced solid long-term total results, and this is another reason why buying pullbacks could make sense.
No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
