ETF Showdown: Fun With Pharma
It's no secret that the defense theme worked in 2011 as ETFs tracking pharmaceuticals, staples and utilities stocks produced nice returns. And as we recently noted there are still some potential winners for 2012 in those groups.
With 2011 in the books, it should be noted that among sector ETFs, the SPDR S&P Pharmaceuticals ETF (NYSE: XPH) and the Market Vectors Pharmaceuticals ETF (NYSE: PPH) each enjoyed excellent runs this year as both ETFs gained more than 10%.
Seems like a the right recipe for the last "ETF Showdown" of 2011. Let's start with the Market Vectors Pharmaceuticals ETF, which just made the transition to the Market Vectors family from being a HOLDRs fund.
With $256.2 million in assets under management, PPH has an expense ratio of 0.35% and is home to 25 stocks. Dow components Johnson & Johnson (NYSE: JNJ) and Pfizer (NYSE: PFE) account for over 14.5% of the ETF's weight. Other top-10 PPH holdings include Merck (NYSE: MRK), Abbott Labs (NYSE: ABT), Astra-Zeneca (NYSE: AZN) and Eli Lilly (NYSE: LLY).
XPH has the same expense ratio as its rival with almost $291 million in AUM. The SPDR offering also holds 27, slightly more than PPH. Those aren't the only differences between the two ETFs, though.
Roughly 55% of PPH's weight is concentrated in its top-10 holdings, which are decidedly large-cap, blue-chip pharma names. Yes, XPH features Merck, Lilly and Pfizer among its top-10 holdings and Abbott and Johnson & Johnson are found in the ETF, too. However, the ETF does feature some riskier fare with beaten-down Hospira (NYSE: HSP) as its top-holding.
There are more growth opportunities in XPH as well. Mylan (Nasdaq: MYL), Allergan (NYSE: AGN), Salix Pharmaceuticals (Nasdaq: SLXP) and Jazz Pharmaceuticals (Nasdaq: JAZZ) are also top-10 holdings in XPH.
Yes, some of those stocks are found in PPH, but upon further examination of XPH's weightings, it's clear this ETF is the choice for the pharma investor who wants a dash of risk or at least some exposure to potential takeover targets.
On the other hand, PPH is the type of pharma ETF you might tell your grandfather about and if 2012 brings the type of volatility we had to endure in 2011, PPH will be a fine option as well. In other words, the final "ETF Showdown" of 2011 ends in a draw, but maybe, just maybe, XPH's more volatile holdings will help separate it from the pharma ETF pack in 2012.
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