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Pharmaceutical investors can benefit tremendously from a drug company’s successful product launch. On the other hand, they can also lose big from drug recalls, lawsuits and harmful side effects.
Pharmaceutical ETFs buy and hold stocks in companies directly involved in the research, development, production, promotion and distribution of drugs and pharmaceuticals of all types. These funds trade like stocks but offer much more exposure to top drug companies than regular stock trading.
The 6 U.S. pharma ETFs have $835.16 million in assets under management (AUM), and the average expense ratio is 0.55%. Before Benzinga reveals the 3 best ETFs, here are a few details to know.
Pharma ETFs Biggest Gainers and Losers
If you intend to buy a pharma ETF on a temporary price dip, the biggest gainers and losers list is a fine reference. Many online brokers offer you this list as a reference aid. Also, you can reinforce your decision to buy or sell a pharma ETF by tracking its activity on the lists.
Premarket Pharma ETFs
Premarket trading can be frustrating and risky. This is the case because liquidity is low, trade volume is low and volatility is high. However, it may be worth the trouble to react to new information about your investment before the opening bell.
Aftermarket Pharma ETFs
Trade volume is even less than the pre-market conditions. This aggravates the other 2 main factors. But it’s nice to know that you can react to late-breaking news about your ETF or the pharma sector.
Why Invest in Pharma ETFs?
There are several reasons to invest in pharma ETFs. Take a look at our top 3:
- Tax breaks: Trading within the fund gives you the benefit of paying lower capital gains taxes.
- Easy access: Pharma ETFs have low fees or no fees. Plus, the transactions are much smoother than with index funds. Liquidity is not a problem.
- Leverage options: With a leveraged pharma ETF, you can benefit from a 2:1 or 3:1 ratio of return while only risking your cash investment. This is much better than margin trading.
3 Pharma ETF(s) by AUM
The following pharma ETFs appear in the order of their assets under management (AUM). All 3 have very impressive portfolios with shares from major pharmaceutical companies. The pharma ETF with the most AUM generally rules over the sector.
1. Invesco Dynamic Pharmaceutical (NYSEArca: PJP):
This ETF fund concentrates on granting investors exposure to U.S. pharmaceutical companies. It attributes the sector’s high-risk factor to the Federal Food and Drug Administration’s (FDA) strict regulations and costly testing. Invesco Dynamic invests in companies according to its valuations and risk factors.
Among its prominent holdings are Bristol-Myers Squibb, Eli Lilly, AbbVie and Johnson & Johnson. Its current AUM is $332.2 million. Its ER is 0.56%.
2. iShares U.S. Pharmaceuticals (NYSEArca: IHE):
iShares has $319 million AUM with an ER of 0.42%. It attempts to follow the investment outcomes of the Dow Jones Select Pharmaceuticals Index. Of the 45 holdings it tracks, 64% are large-cap stocks and 20% are mid-cap stocks. Its list of top holdings includes Zoetis, Johnson & Johnson, Merck and Eli Lilly.
3. SPDR S&P Pharmaceuticals (NYSEArca: XPH):
This ETF has a $193 million AUM and an ER of 0.35%. SPDA attempts to track 40 holdings in the S&P Pharmaceuticals select industry index.
This subsector of the health care market can post super-high returns on a conditional basis. However, SPDR’s narrow focus makes it an unlikely long-term holding. Its portfolio includes Zoetis, Perrigo and Elanco Animal Health.
Best Online Brokers for Pharma ETFs
There’s not a quicker, easier or cheaper way to invest in pharma ETFs than through an online broker. Everything that you will need is just a sign up away. Here are 3 of Benzinga’s top suggestions.
1. You Invest by J.P. Morgan
If you’re already a customer with Chase Bank, Chase You Invest by J.P. Morgan is a no-brainer. You can easily research, trade and manage your investments from your mobile device. You Invest provides online tools to search for investments, track companies and rollover your assets.
Only U.S. clients are able to open a You Invest account but it takes, on average, just a day to open and you’re able to apply fully online. Equipped with portfolio reports and pie charts, the mobile app is simple and user-friendly. The app is available for both iOS and Android devices.
With Chase You Invest you’ll have access to roughly 5,000 stock exchanges. There are plenty of research and educational tools provided on the app. Overall, we recommend the Chase You Invest platform for stock trading because it’s easy to open and fund an account. It’s also reliable thanks to its strong parent company, J.P. Morgan.
TradeStation’s web, desktop and mobile platforms provide excellent environments for your pharma ETF trading purposes. Its platforms feature streaming market news, price alerts, watch lists and indicators. The Matrix has a 1-click order entry and order tracking. To plot your pharma trading strategy, the platforms have powerful charting tools with a huge supply of case studies and historical data. Plus, you pay $0 for your pharma ETF trades.
Extended trading is available. This broker offers premarket trading from 8 a.m. to 9:30 a.m. EST. After-hours sessions continue for 4 hours — 4 p.m. until 8 p.m. EST. You pay no surcharge during these times.
TradeStation’s pattern trading rules require a minimum $25,000 balance in your account. A pattern-day trader, or day trader, is a margin customer who buys and sells the same security within the same day for 4 or more days out of 5 days. If your accounts fall below the minimum balance, TradeStation will not allow you to trade until you restore it.
Firstrade offers $0 pharma ETF trades and solid support with its platform tools. Customizable columns and data streams, you can design a trading dashboard for your investing activities. You’ll be able to view market news from Benzinga Pro and other financial media outlets from your dashboard. Plus, your dashboard will display a list of the day’s gainers and losers.
You can start easily managing your pharma ETF holdings with value charts for weekly, biweekly, monthly and bimonthly performance reports. If you want to trade your pharma ETFs after the regular trading session, Firstrade accommodates you with extended-hour trading. The premarket starts at 8 a.m. and ends at 9:25 a.m. EST. Aftermarket hours are 4:05 p.m. to 8 p.m. EST.
Day traders must maintain a $25,000 minimum balance. Firstrade defines a pattern day trader as a margin customer who makes 3 round trip trades within 5 days. A round trip trade is an act of buying and selling a security within 1 day’s time.
4. TD Ameritrade
Looking for awesome trading tools, state-of-the-art platforms and a full learning center? TD Ameritrade could be your pharma ETF broker. It has a lot to offer both novice and advanced traders.
The regular platforms feature an assortment of planning tools, alerts and research tools. The education center has instructional videos and mini-courses with real coaches. If you are an advanced user, you’ll enjoy the thinkorswim platform. It provides excellent forecasting, strategizing and striking tools.
You can trade 24/5 24 hours a day, 5 days a week. All of this is available to you for free, including your pharma ETF trades. For day trading pharma ETFs, TD Ameritrade requires a minimum $25,000 equity balance. It allows you to trade a maximum of 4 times the equity amount in your account.
Are You Ready to Trade Pharma ETFs?
Pharma ETFs can give you wide exposure to major pharmaceutical companies in an affordable way. Keep in mind that there are some major risk factors.
ETF trading lets you hedge your risks or play the long game. Your financial fate doesn’t have to rely on the performance of 1 or 2 companies or penny stocks. Is it time to try something new?