A smart beta exchange traded fund, the Invesco Pharmaceuticals ETF (PJP) debuted on 06/23/2005, and offers broad exposure to the Health Care ETFs category of the market.

What Are Smart Beta ETFs?

For a long time now, the ETF industry has been flooded with products based on market capitalization weighted indexes, which are designed to represent the broader market or a particular market segment.

Market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns, and are a good option for investors who believe in market efficiency.

But, there are some investors who would rather invest in smart beta funds; these funds track non-cap weighted strategies, and are a strong option for those who prefer choosing great stocks in order to beat the market.

This kind of index follows this same mindset, as it attempts to pick stocks that have better chances of risk-return performance; non-cap weighted strategies base selection on certain fundamental characteristics, or a mix of such characteristics.

Even though this space provides many choices to investors--think one of the simplest methodologies like equal-weighting and more complicated ones like fundamental and volatility/momentum based weighting--not all have been able to deliver first-rate results.

Fund Sponsor & Index

The fund is sponsored by Invesco. It has amassed assets over $263.73 million, making it one of the average sized ETFs in the Health Care ETFs. This particular fund seeks to match the performance of the Dynamic Pharmaceutical Intellidex Index before fees and expenses.

The Dynamic Pharmaceutical Intellidex Index is comprised of stocks of U.S. pharmaceutical companies. It is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors.

Cost & Other Expenses

Investors should also pay attention to an ETF's expense ratio. Lower cost products will produce better results than those with a higher cost, assuming all other metrics remain the same.

Annual operating expenses for PJP are 0.57%, which makes it on par with most peer products in the space.

The fund has a 12-month trailing dividend yield of 0.97%.

Sector Exposure and Top Holdings

Even though ETFs offer diversified exposure which minimizes single stock risk, it is still important to look into a fund's holdings before investing. Luckily, most ETFs are very transparent products that disclose their holdings on a daily basis.

For PJP, it has heaviest allocation in the Healthcare sector --about 100% of the portfolio.

When you look at individual holdings, Abbvie Inc (ABBV) accounts for about 6% of the fund's total assets, followed by Merck & Co Inc (MRK) and Eli Lilly & Co (LLY).

Its top 10 holdings account for approximately 56.76% of PJP's total assets under management.

Performance and Risk

Year-to-date, the Invesco Pharmaceuticals ETF has gained about 0.62% so far, and is down about -2.89% over the last 12 months (as of 04/24/2024). PJP has traded between $67.88 and $80.28 in this past 52-week period.

PJP has a beta of 0.59 and standard deviation of 15.56% for the trailing three-year period, which makes the fund a high risk choice in the space. With about 24 holdings, it has more concentrated exposure than peers.

Alternatives

Invesco 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.

VanEck Pharmaceutical ETF (PPH) tracks MVIS US Listed Pharmaceutical 25 Index and the iShares U.S. Pharmaceuticals ETF (IHE) tracks Dow Jones U.S. Select Pharmaceuticals Index. VanEck Pharmaceutical ETF has $498.92 million in assets, iShares U.S. Pharmaceuticals ETF has $661.57 million. PPH has an expense ratio of 0.36% and IHE charges 0.40%.

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.

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Invesco Pharmaceuticals ETF (PJP): ETF Research Reports

Merck & Co., Inc. (MRK) : Free Stock Analysis Report

Eli Lilly and Company (LLY) : Free Stock Analysis Report

AbbVie Inc. (ABBV) : Free Stock Analysis Report

iShares U.S. Pharmaceuticals ETF (IHE): ETF Research Reports

VanEck Pharmaceutical ETF (PPH): ETF Research Reports

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