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Global Appeal In A Generics ETF

January 30, 2018 11:53 am
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The health care sector, the third-largest sector weight in the S&P 500, is surging.

Generic drugmakers have been a source of strength for the group. For example, the VanEck Vectors Generic Drugs ETF (NASDAQ:GNRX) is up 9 percent since the start of 2018 and resides near all-time highs after surging 17.4 percent in 2017.

GNRX, which turned 2 earlier this month, follows the Indxx Global Generics & New Pharma Index. That benchmark “is intended to track the overall performance of companies that derive a significant proportion of their revenues or that have the potential to derive a significant proportion of their revenues from the generic drug industry, or that have a primary business focus on the generic drug industry,” according to VanEck.

While many traditional health care exchange traded funds focus on U.S. companies, GNRX is a global fund, a trait that is seen as driving the ETF's upside potential.

Generics Go Global

It's notable that non-U.S. market opportunities for many generic drug companies have driven recent performance,” said VanEck in a recent note. “The largest contributors to generic company stock returns have come from global names tapping global market opportunities.” 

GNRX holds 41 stocks, just under 30 percent of which are U.S. companies. Overall, 14 countries are represented in GNRX, seven of which are classified as emerging markets. India and China combine for nearly 30 percent of the ETF's weight.

Last year, markets such as Hong Kong, South Korea and Switzerland were key contributors to the upside delivered by GNRX, according to issuer data.

European Opportunity

Europe is emerging as an important market for biosimilars and generic drugs.

“The European market has emerged as a bright spot of opportunity in the generic drugs space,” said VanEck. “Foreign companies are pushing to expand further into this market, as seen by a number of key acquisitions and takeovers which occurred in 2017.”

Five of the 14 countries in GNRX are European nations. The ETF's top 10 holdings combine for 52.2 percent of its weight.

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