After the incredible surge in 2013, the healthcare sector is no doubt crushing the overall market this year too. This is largely thanks to the bullish trend in both the pharma and biotech segments and robust performances by major drug companies.
Total fourth quarter earnings for the medical sector reported so far are up 1% with a beat ratio of 74.5% while revenues are up 6% with a beat ratio of 72.3%. Though biotech stocks continued their strong performances, pharma stocks have shown a strong turnaround from the recent patent cliffs and became the darlings of the financial market of late.
Increasing merger and acquisition activities, promising new drugs and their approval, restructuring, increased pipeline visibility, aging population and expansion into emerging markets are boosting confidence in the pharma sector.
In addition, the Affordable Care Act (often known as Obamacare) – which ensures a larger base of insured persons across the U.S. – is fueling growth. With expanded healthcare coverage, this corner of the healthcare space will likely be a huge beneficiary, boosting sales for many drug companies, as drugs would be accessible to a large number of Americans (read: Obamacare Will Be Amazing for These Stocks and ETFs).
Further, the bullish trend for the sector is confirmed by the Zacks Industry Rank, as pharma has one of the best ranks for any industry at the time of writing. Three out of four Zacks industries that are classified under pharma have Zacks Ranks in the top 37%, suggesting solid trading for this segment in the coming months.
Moreover, the sector might be a good defensive play in order to withstand the current volatility in the market arising from the Fed’s unwinding monetary stimulus and the recent sluggish U.S. economic data.
Top Pharma ETFs to Consider
Given this favorable position of the pharma industry, investors may want to consider some of the ETFs tracking this space for exposure. While there a number of quality choices in the space, we have highlighted some of our favorite top performing pharma ETFs below, any of which could make for excellent investments in today’s growth-focused market:
SPDR S&P Pharmaceuticals ETF (NYSEARCA:XPH)
The fund tracks the S&P Pharmaceuticals Select Industry Index, holding 33 securities in its basket. The product has $913.3 million in AUM and trades more than 110,000 shares in volume a day, while its cost is just 35 basis points a year.
The product is pretty well spread across each security as the top 10 holdings account for nearly 43% of the total assets. Forest Laboratories (FRX), Jazz Pharmaceuticals (JAZZ) and Questcor Pharmaceuticals (QCOR) occupy the top three positions in the basket with a combined 14.58% share. While large caps account for 44% of total assets, small and mid caps take the remainder.