Back to top

Image: Bigstock

Is SPDR S&P Pharmaceuticals ETF (XPH) a Hot ETF Right Now?

Read MoreHide Full Article

A smart beta exchange traded fund, the SPDR S&P Pharmaceuticals ETF (XPH) debuted on 06/19/2006, and offers broad exposure to the Health Care ETFs category of the U.S. equity market.

What Are Smart Beta ETFs?

The ETF industry has traditionally been dominated by products based on market capitalization weighted indexes that are designed to represent the market or a particular segment of the market.

Investors who believe in market efficiency should consider market cap indexes, as they replicate market returns in a low-cost, convenient, and transparent way.

There are some investors, though, who think it's possible to beat the market with great stock selection; this group likely invests in another class of funds known as smart beta, which track non-cap weighted strategies.

By attempting to pick stocks that have a better chance of risk-return performance, non-cap weighted indexes are based on certain fundamental characteristics, or a combination of such.

While this space offers a number of choices to investors, including simplest equal-weighting, fundamental weighting and volatility/momentum based weighting methodologies, not all these strategies have been able to deliver superior results.

Fund Sponsor & Index

Managed by State Street Global Advisors, XPH has amassed assets over $350.04 M, making it one of the average sized ETFs in the Health Care ETFs. This particular fund 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.

Cost & Other Expenses

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.

Operating expenses on an annual basis are 0.35% for XPH, making it the least expensive product in the space.

It's 12-month trailing dividend yield comes in at 0.70%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure that minimizes single stock risk, investors should also look at the actual holdings inside the fund. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

Representing 100% of the portfolio, the fund has heaviest allocation to the Healthcare sector.

Taking into account individual holdings, Allergan Plc (AGN) accounts for about 4.46% of the fund's total assets, followed by Eli Lilly And Company (LLY) and Jazz Pharmaceuticals Plc (JAZZ - Free Report) .

Its top 10 holdings account for approximately 41.83% of XPH's total assets under management.

Performance and Risk

The ETF has lost about -5.84% so far this year and is down about -0.63% in the last one year (as of 04/24/2018). In the past 52-week period, it has traded between $40.03 and $46.85.

The ETF has a beta of 1.28 and standard deviation of 25.67% for the trailing three-year period, making it a high choice in the space. With about 45 holdings, it has more concentrated exposure than peers.

Alternatives

SPDR S&P Pharmaceuticals ETF is a reasonable option for investors seeking to outperform the Health Care ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

IShares U.S. Pharmaceuticals ETF (IHE) tracks Dow Jones U.S. Select Pharmaceuticals Index and the PowerShares Dynamic Pharmaceuticals Portfolio (PJP) tracks Dynamic Pharmaceutical Intellidex Index. IShares U.S. Pharmaceuticals ETF has $396.12 M in assets, PowerShares Dynamic Pharmaceuticals Portfolio has $563.27 M. IHE has an expense ratio of 0.44% and PJP charges 0.56%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Health Care ETFs.

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.


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Jazz Pharmaceuticals PLC (JAZZ) - free report >>