The iShares U.S. Pharmaceuticals ETF (NYSEMKT:IHE) offers lower fees and a higher dividend yield, while the Invesco Pharmaceuticals ETF (NYSEMKT:PJP) spreads its holdings more evenly across the sector’s biggest players.
Investors seeking pharmaceutical exposure in an ETF often have to choose between broad industry coverage and a more concentrated strategy. This comparison examines how IHE and PJP navigate the regulatory and research-heavy world of American drugmakers — weighing fees, portfolio concentration, and long-term performance in a sector that can swing hard on a single clinical trial or FDA decision.
Snapshot (cost & size)
Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-year return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
IHE is the less expensive option with a 0.38% expense ratio, compared to PJP’s 0.57%. IHE also pays a 1.62% dividend, meaningfully higher than PJP’s 0.96%.
Performance & risk comparison
What’s inside
Launched in 2006, IHE holds 56 positions — all in U.S.-based pharmaceutical companies. However, its top two holdings dominate its portfolio: Eli Lilly (NYSE:LLY) and Johnson & Johnson (NYSE:JNJ) alone make up roughly 44% of the fund, at 24.2% and 20.3%, respectively, with Merck (NYSE:MRK) a distant third at 5.2%.
PJP has an even narrower portfolio of 29 companies, but spreads the risk more evenly among its top holdings. Its largest positions include Eli Lilly at 5.4%, Abbott Laboratories (NYSE:ABT) at 5.3%, and Liquidia (NASDAQ:LQDA) at 5.1%. The fund was launched in 2005.
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What this means for investors
The choice between IHE and PJP really comes down to how much company-specific risk you’re comfortable taking on within your pharma exposure. IHE’s cap-weighted approach means its fortunes are closely tied to just two companies, Johnson & Johnson and Eli Lilly — so if either stumbles on a drug trial, patent cliff, or regulatory setback, the whole fund will feel it. That’s a normal trait of cap-weighted sector funds — not necessarily a red flag — but worth knowing going in.
Even though it holds fewer stocks, PJP’s more even position-weighting can smooth out the ride when one company hits turbulence, though it also means no single winner (like Eli Lilly’s recent run) will move the needle as much.
The performance gap here is also worth noting: IHE’s heavier tilt toward Eli Lilly, which has been one of the sector’s strongest performers thanks to its weight-loss and diabetes drugs, has helped drive its better five-year returns and shallower drawdowns. That’s a useful reminder that fund concentration cuts both ways — it adds to returns on the way up, but can just as easily work against the fund when one of its top holdings is struggling.
For investors who want pharma exposure without picking single stocks, either ETF works as a decent starting point. Those comfortable leaning into a couple of proven blue chip names might prefer IHE’s lower cost and higher yield. Investors who’d rather not have any one company make up nearly a quarter of their pharma allocation may find PJP’s more balanced structure lets them sleep a little easier.
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Andy Gould has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Abbott Laboratories, Eli Lilly, and Merck. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
IHE vs. PJP: Which Pharmaceutical ETF Is the Better Buy for Investors? was originally published by The Motley Fool