In the realm of healthcare investing, investors often find themselves weighing the choice between high-growth biotechnology companies and stable, traditional pharmaceutical giants. Two exchange-traded funds (ETFs)—the Invesco Pharmaceutical ETF (PJP) and the VanEck Biotech ETF (BBH)—offer investors targeted exposure to these two distinct subsectors. The former tracks a broader range of traditional drug manufacturing and distribution firms, while the latter focuses on biotechnology companies at the forefront of genetic research.
From a cost-of-holding perspective, the VanEck Biotech ETF holds the advantage, with an expense ratio of 0.35%, lower than the Invesco Pharmaceutical ETF at 0.57%. On a USD 10,000 investment, the annual fee difference between the two amounts to approximately USD 22. However, in terms of income return, the Invesco Pharmaceutical ETF takes the lead, with a distribution of USD 1.06 per unit over the past 12 months, translating to a dividend yield of roughly 0.8% based on a recent price of about USD 128.89. Meanwhile, the VanEck Biotech ETF distributed USD 0.96 per unit over the same period, resulting in a dividend yield of approximately 0.4% based on a price of roughly USD 237.11.
From a portfolio perspective, the Invesco Pharmaceutical ETF tracks an index comprising 28 U.S. pharmaceutical companies, covering drug development and distribution channels. Although it is a non-diversified fund, its business scope is broader than that of a pure biotech fund. Its top three holdings are AbbVie Inc. (ABBV), Amgen Inc. (AMGN), and Abbott Laboratories (ABT), each accounting for roughly 5.5% of the portfolio. The fund was established in 2005.
In contrast, the VanEck Biotech ETF is more concentrated. It tracks the MVIS U.S. Listed Biotech 25 Index and currently holds only 24 stocks, with a pronounced top-heavy tilt: Amgen Inc. (AMGN) represents as much as 16% of the portfolio, Gilead Sciences (GILD) accounts for 13%, and Vertex Pharmaceuticals (VRTX) makes up 8.6%. This fund was launched in 2011.
Although both funds are highly focused on the U.S. healthcare sector and both exhibit high concentration in their top ten holdings, their styles differ significantly. The VanEck Biotech ETF takes a more extreme approach, with its top ten holdings accounting for approximately 72% of fund assets, compared to 50% for the Invesco Pharmaceutical ETF . In terms of market-cap style, the Invesco Pharmaceutical ETF allocates about 43% to small-cap stocks in pursuit of greater growth potential, while the VanEck Biotech ETF is primarily composed of mid-cap stocks, which make up roughly 55% of the portfolio.
Benefiting from its participation in the GLP-1 (glucagon-like peptide-1) drug boom, the Invesco Pharmaceutical ETF previously held a significant position in Eli Lilly (which remains among its top ten holdings) and delivered substantial returns as a result. The fund posted annualized returns of 17.1%, 9.5%, and 7% over the three-year, five-year, and ten-year periods, respectively. Over the same time frames, the VanEck Biotech ETF generated annualized returns of 9.1%, 0.34%, and 6.4%.
Taken together, while both ETFs have their distinct characteristics, the Invesco Pharmaceutical ETF outperforms across all time horizons under the metric of long-term performance, demonstrating stronger return-generating capability.
