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Should You Invest in the SPDR SP Pharmaceuticals ETF (XPH)?

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If you're interested in broad exposure to the Healthcare - Pharma segment of the equity market, look no further than the SPDR SP Pharmaceuticals ETF (XPH - Free Report) , a passively managed exchange traded fund launched on 06/19/2006.

While an excellent vehicle for long term investors, passively managed ETFs are a popular choice among institutional and retail investors due to their low costs, transparency, flexibility, and tax efficiency.

Sector ETFs are also funds of convenience, offering many ways to gain low risk and diversified exposure to a broad group of companies in particular sectors. Healthcare - Pharma is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 13, placing it in bottom 19%.

Index Details

The fund is sponsored by State Street Global Advisors. It has amassed assets over $231.05 million, making it one of the average sized ETFs attempting to match the performance of the Healthcare - Pharma segment of the equity market. XPH seeks to match the performance of the S&P Pharmaceuticals Select Industry Index before fees and expenses.

The S&P Pharmaceuticals Select Industry Index represents the pharmaceuticals sub-industry portion of the S&P Total Markets Index. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Pharmaceuticals Index is a modified equal weight index.

Costs

Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining the same.

Annual operating expenses for this ETF are 0.35%, making it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 0.57%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Healthcare sector--about 100% of the portfolio.

Looking at individual holdings, Horizon Therapeutics Public Limited Company (HZNP - Free Report) accounts for about 5.05% of total assets, followed by Royalty Pharma Plc Class A (RPRX - Free Report) and Myokardia Inc. .

The top 10 holdings account for about 46.57% of total assets under management.

Performance and Risk

Year-to-date, the SPDR SP Pharmaceuticals ETF has added roughly 1.60% so far, and is up about 21.85% over the last 12 months (as of 11/08/2020). XPH has traded between $31.56 and $47.91 in this past 52-week period.

The ETF has a beta of 1.16 and standard deviation of 25.34% for the trailing three-year period, making it a high risk choice in the space. With about 44 holdings, it has more concentrated exposure than peers.

Alternatives

SPDR SP Pharmaceuticals ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors. Thus, XPH is a good option for those seeking exposure to the Health Care ETFs area of the market. Investors might also want to consider some other ETF options in the space.

Invesco Dynamic Pharmaceuticals ETF (PJP - Free Report) tracks Dynamic Pharmaceutical Intellidex Index and the iShares U.S. Pharmaceuticals ETF (IHE - Free Report) tracks Dow Jones U.S. Select Pharmaceuticals Index. Invesco Dynamic Pharmaceuticals ETF has $319.70 million in assets, iShares U.S. Pharmaceuticals ETF has $369.45 million. PJP has an expense ratio of 0.56% and IHE charges 0.42%.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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