After scuffling amid political uncertainty leading up to Election Day, pharmaceutical stocks and exchange-traded funds are finally perking amid a spate of encouraging news regarding coronavirus vaccine progress.
What Happened: The VanEck Vectors Pharmaceutical ETF PPH, which tracks the US Listed Pharmaceutical 25 Index, is a prime example of recent pharmaceutical equity ebullience. The $261 million PPH is a focused ETF with just 25 holdings, but the fund is nonetheless levered to the vaccine competition.
For example, AstraZeneca AZN and Pfizer PFE combine for 9.60% of the VanEck fund's roster.
Why It's Important: The vaccine is an obvious catalyst for funds such as PPH, particularly with companies such as Pfizer and Moderna MRNA reporting efficacy rates of 95%. However, there's more to the story with PPH and that should be enticing for investors.
“The possibility of a divided U.S. Congress may further propel the pharmaceutical sector, benefiting pharmaceutical ETFs,” according to a VanEck research note. “Although both Democrats and Republicans are supportive of drug pricing and reimbursement reform, the prospects of big changes to government health plans are lower if there is a policy gridlock.”
Adding to the tailwinds for PPH are the healthcare sectors status as a value destination with credible growth prospects and earnings momentum.
“Meanwhile, third-quarter results from the pharmaceutical sector has been upbeat so far, with almost 90% of the companies reporting better-than-expected revenues and earnings. Analysts expect the momentum to continue, with industry estimates from Factset projecting earnings growth over the next couple of years,” according to VanEck.
What's Next: In addition to AstraZeneca and Pfizer, several other PPH components are working on coronavirus vaccines, though Moderna and Pfizer are setting the bar high with the aforementioned 95% efficacy rate. That said, there are opportunities for other competitors to make their marks, particularly if one or more PPH components can introduce a single-dose vaccine.
Eventually, the pandemic will be defeated, a scenario that should bring other fundamental factors into focus for PPH.
“A growing, ageing and richer global population will further boost demand for improved biotechnology and healthcare. Technological advancements such as the increased use of artificial intelligence and online doctors, and evolving care models may also ensure a long tailwind for the sector,” notes VanEck.
Investors are displaying some enthusiasm for PPH this year as highlighted by $48.48 million of inflows, representing a significant percentage of the fund's overall assets under management tally.
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