Pharma market investments: How ETFs help you dabble in the sector at a modest price

Pharma market investments: How ETFs help you dabble in the sector at a modest price

Just like the name implies, exchange-traded funds, or ETFs, are a bundle of securities that are traded on exchanges and can follow a particular index like housing, social causes or pharma.

Because these securities and assets are bundled, there could be less risk and greater diversification.

If you have investment goals in the pharma sector, consider ETFs.

“For those who are looking to invest in a particular sector or industry, like pharma, products like ETFs or mutual funds can be a great place to start,” said Wendy Liebowitz, vice president and branch leader at Fidelity Investments.

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She explained pharma ETFs invest in the stocks of pharmaceutical companies, allowing investors to target their exposure.

Pharmacist customer medication drugstore

A pharmacist assists a customer at a drugstore. (iStock)

“In general, focusing investments on a specific industry can be beneficial because it can help you pursue potential growth in resilient or innovative industries, diversify your portfolio, and manage risk,” said Liebowitz.

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Given that ETFs, including pharma ETFs, invest in many securities, investors have the benefit of diversification, which can help broaden your exposure to the industry and reduce risk compared to investing in a single stock or bond, she said.

“However, keep in mind that compared to a broad market ETF, sector ETFs can be more volatile given their relatively narrow focus,” cautioned Liebowitz.

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For some perspective, Todd Rosenbluth, head of research with VettaFi, said health care sector ETFs like Health Care Select Sector SPDR and Vanguard Health Care ETF have sizable exposure to pharmaceutical companies like Johnson & Johnson and Pfizer, as well as other less related companies like United Health Group and Medtronic.

Ticker Security Last Exchange Change %
XLV HEALTH CARE SELECT SECTOR SPDR ETF 129.68 +1.44 +1.12%
VHT VANGUARD WORLD FDS VANGUARD HEALTH CARE ETF 238.50 +3.00 +1.27%
JNJ JOHNSON & JOHNSON 179.52 +2.01 +1.13%
EFP PFIZER INC. 52.31 -0.12 -0.23%
A H UNITEDHEALTH GROUP INC. 517.40 +3.77 +0.73%
MTD MEDTRONIC PLC 91.38 +1.63 +1.82%

However, Rosenbluth says, SPDR S&P Pharmaceuticals ETF offers more targeted exposure to the industry with a mix of large- and small-cap companies.

Ticker Security Last Exchange Change %
XPH SPDR SERIES TRUST SPDR S&P PHARMACEUTICALS 42.63 +0.63 +1.50%

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