As the drug industry is in the middle of a growing policy maelstrom in Washington, D.C., investors are closely watching pharmaceutical ETFs to measure market sentiment and ride out the emerging volatility.

With President Donald Trump’s administration rehashing contentious ideas on drug pricing and manufacturing policy, the stakes are increasing — not only for Big Pharma, but for the overall healthcare investment environment.

Amid the trends, pharma-targeted ETFs are being watched under a more risk-averse lens. Each of the funds provides sector exposure, but structural idiosyncrasies — and varying levels of protection from regulation-induced shocks — are gaining heightened relevance.

Slicing Up The Pharma ETF Scene

iShares U.S. Pharmaceuticals ETF IHE

The ETF offers concentrated exposure to large-cap U.S.-listed pharma companies. Its top holdings are Johnson & Johnson JNJ, Merck & Co Inc MRK, Eli Lilly And Co LLY, and Pfizer Inc PFE — companies with strong pipelines and international revenue streams.

Defensive Tilt: IHE’s emphasis on blue-chip names makes it a relatively defensive play during periods of political unrest.

Policy Sensitivity: But its large weighting in companies with substantial Medicaid and U.S. sales exposure renders it highly sensitive to pharmaceutical pricing reform in the domestic market.

SPDR S&P Pharmaceuticals ETF XPH

Unlike IHE, the SPDR S&P Pharmaceuticals ETF uses an equal-weighting style, dispersing exposure across a larger segment of the industry, including mid- and small-cap companies such as Viatris VTRS.

Diversified Risk: This format caps overconcentration in a single name and increases sensitivity to prospective M&A action.

Higher Volatility: As more importance is assigned to lesser-known participants, XPH can see greater price volatility, particularly as regulatory threats play out.

VanEck Pharmaceutical ETF PPH

Those in search of global exposure should look at PPH, which includes international powerhouses such as AstraZeneca AZN and Novo Nordisk A/S NVO on par with U.S. behemoths.

Geopolitical Hedge: International diversification renders PPH less susceptible to U.S.-specific tariff risks or reforms.

Growth Exposure: Novo Nordisk’s dominance of GLP-1-based obesity treatment provides a high-growth component, although subject to some headwinds due to compounding alternatives in the U.S.

Volatility Ahead?

These ETF dynamics are unfolding against a backdrop of sweeping proposals and heightened industry-government tension. The Trump administration's revived push to tether Medicaid drug prices to lower international benchmarks has sent shockwaves through the pharmaceutical sector. Industry analysts estimate the pricing framework could erase as much as $1 trillion in revenue over a decade, according to Bloomberg.

Surprised by the White House’s latest move, drug industry executives have mounted a concerted lobbying effort, trying to keep the policy from taking hold in Congress. Although some Republican lawmakers, including Kentucky Rep. Brett Guthrie, have reaffirmed their opposition to global reference pricing, the proposal is still a live political threat, Bloomberg reported.

And adding to investor anxiety is Trump’s latest threat of sector-specific tariffs on drugs. Although the Department of Commerce’s Section 232 investigation can take months, the threat of new import tariffs — particularly on Indian generics and contract-manufactured products — has already spilled over into related stocks. Insiders within the industry say the administration might move while there is a 90-day moratorium on reciprocal tariff imposition.

Not all of Washington’s signals are bearish, though. A recently signed executive order is intended to lower FDA approval times for U.S. manufacturing plants — potentially speeding up reshoring and encouraging investment in U.S.-based production. For more exposed domestic manufacturers and smaller company-focused ETFs such as XPH, this may be a long-term tailwind.