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Should You Invest in the iShares U.S. Pharmaceuticals ETF (IHE)?

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Launched on 05/01/2006, the iShares U.S. Pharmaceuticals ETF (IHE - Free Report) is a passively managed exchange traded fund designed to provide a broad exposure to the Healthcare - Pharma segment of the equity market.

Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are excellent vehicles for long term investors.

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 6, placing it in top 38%.

Index Details

The fund is sponsored by Blackrock. It has amassed assets over $380.16 million, making it one of the average sized ETFs attempting to match the performance of the Healthcare - Pharma segment of the equity market. IHE seeks to match the performance of the Dow Jones U.S. Select Pharmaceuticals Index before fees and expenses.

The Dow Jones U.S. Select Pharmaceuticals Index is free-float adjusted market capitalization-weighted index. It includes pharmaceutical companies such as manufacturers of prescription or over-the-counter drugs or vaccines, but excludes producers of vitamins.

Costs

Since cheaper funds tend to produce better results than more expensive funds, assuming all other factors remain equal, it is important for investors to pay attention to an ETF's expense ratio.

Annual operating expenses for this ETF are 0.39%, making it one of the cheaper products in the space.

It has a 12-month trailing dividend yield of 2.04%.

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, Johnson & Johnson (JNJ - Free Report) accounts for about 22.88% of total assets, followed by Merck & Co Inc (MRK - Free Report) and Eli Lilly (LLY - Free Report) .

The top 10 holdings account for about 77.61% of total assets under management.

Performance and Risk

The ETF has lost about -4.64% and is down about -3.93% so far this year and in the past one year (as of 05/22/2023), respectively. IHE has traded between $167.98 and $196.90 during this last 52-week period.

The ETF has a beta of 0.70 and standard deviation of 16.07% for the trailing three-year period, making it a high risk choice in the space. With about 46 holdings, it has more concentrated exposure than peers.

Alternatives

IShares U.S. Pharmaceuticals ETF sports a Zacks ETF Rank of 4 (Sell), which is based on expected asset class return, expense ratio, and momentum, among other factors. IHE, then, is not the best option for investors seeking exposure to the Health Care ETFs segment of the market. However, there are better ETFs in the space to consider.

Invesco Dynamic Pharmaceuticals ETF (PJP - Free Report) tracks Dynamic Pharmaceutical Intellidex Index and the VanEck Pharmaceutical ETF (PPH - Free Report) tracks MVIS US Listed Pharmaceutical 25 Index. Invesco Dynamic Pharmaceuticals ETF has $303.35 million in assets, VanEck Pharmaceutical ETF has $403.28 million. PJP has an expense ratio of 0.56% and PPH charges 0.36%.

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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