Obama Clears Way for Pharma Plays
As President Obama’s focus shifts from a faltering health care initiative to the economy, major pharmaceutical manufacturers will have some breathing room.
Investors interested on adding a pharma-focused holding to their portfolios should consider either iShares S&P Global Healthcare(IXJ) or iShares Dow Jones US Pharmaceuticals(IHE).
While the president reaffirmed his commitment to health care reform in the latter portion of last night’s speech, the majority of the State of the Union address was devoted to the economy and job creation. The recent defeat in Massachusetts, coupled with unemployment concerns, should help keep the heat off pharma in the short term.
Both IXJ and IHE have benefited over the last three months as a major U.S. health care overhaul became less certain. During the three-month period ended Jan. 27, IXJ and IHE rose 8.85% and 12.10% respectively.
U.S.-focused IHE has benefited the most from the faltering support for Obama’s plan, but both funds focus on many of the same major drug companies. Johnson & Johnson (JNJ) and Pfizer (PFE) are the top two holdings in both IHE and IXJ.
Johnson & Johnson’s diversified business structure and strong pipeline will help to power both IHE and IXJ in the months ahead. A wide range of business segments has helped to keep this firm afloat in rocky markets, while a pipeline with promising drugs for pain, arthritis and cardiovascular products, should keep JNJ trending upward as baby boomers age.
The recent acquisition of Wyeth, coupled with a strong dividend, should help to keep Pfizer in favor with investors in the months ahead. While the acquisition of Wyeth will help PFE to offset losses from patent expirations, a 4% dividend (as of December 2009) will help investors to hold on.
Investors looking for a more global portfolio can benefit from a wide range of companies in IXJ’s roster. More than 61% of IXJ’s holdings are U.S.-traded companies, but this portfolio offers exposure to global giants like Novartis(NVS) and AstraZeneca(AZN). AZN, in particular, has a strong pipeline of drugs that should resonate with baby boomers.
Whether you’re looking for a pure play on U.S. pharma firms or exposure to the global market, IXJ and IHE have the focus and liquidity to make these ETFs trade-able. IHE has 33 holdings and an expense ratio of 0.48, while IXJ has 81 holdings and an expense ratio of 0.48.
While pharma has already recovered significantly in recent months, there is still room for growth as health care shifts out of the regulatory spotlight. Both IXJ and IHE should benefit from this transition over the next few months.
IHE is a holding in my ETF Action portfolio, helping followers to make gains in recent weeks.
