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It was another good week to be a healthcare investor as many of the most popular exchange-traded funds that focus on the industry ended the week higher. Several of these ETFs even put up returns that outperformed the market in general. One fund in particular -- the iShares Dow Jones US Pharmaceuticals ETF (IHE 1.62%) -- was this week's top performer as it gained 2.12% during the period, which easily bested the returns of the S&P 500.
So what's going on inside this ETF that allowed it to perform so well?
Peaking inside
The iShares Dow Jones US Pharmaceuticals ETF is designed to offer investors an easy way to gain broad based exposure to the US pharmaceutical sector. The fund invests in 44 companies that generate revenue primarily from the sales of prescription or over-the-counter drugs or vaccines, and this ETF invests the the majority of its assets in the biggest names of the group.
A look at the fund's top 10 holdings is telling:
| Company | Symbol | % Assets |
|---|---|---|
| Johnson & Johnson | JNJ | 11.31 |
| Pfizer | PFE | 8.65 |
| Merck & Co. | MRK | 8.46 |
| Allergan | AGN | 7.37 |
| Bristol-Myers Squibb | BMY | 7.24 |
| Eli Lilly | LLY | 5.86 |
| Mylan NV | MYL | 3.74 |
| Perrigo PLC | PRGO | 3.65 |
| Zoetis | ZTS | 3.52 |
| Jazz Pharmaceuticals | JAZZ | 2.63 |
TABLE SOURCE: ISHARES
As you can see the fund carries and outsized exposure to the industry giants as more than 62% of its assets are held in its top holdings. Thus, when a handful of these stocks have a good week -- as they did this week -- this ETF performs well, too.
What went right this week
While every single one of this ETFs top 10 holdings ended the trading week higher, two companies in particular -- Mylan (MYL) and Perrigo (PRGO 0.14%) -- were this weeks standout performers.
With both companies producing huge gains like this you would assume that each had some noteworthy announcement this week that could help explain the outperformance, but that doesn't appear to be the case. The only news item of relevance that surfaced this week was that it was reveled that three of Perrigo's executives were awarded huge bonuses for thwarting the takeover attempt made by -- you guessed it -- Mylan. A filing with the SEC showed that Perrigo's CEO Joseph Papa was awarded $2 million for his “key contributions related to Mylan’s hostile takeover attempt”. The company's CFO and General Counsel also received more than $375,00 in cash and bonuses each for their efforts.
I find it unlikely that this news could even partially explain these companies stock market performance this week, so a more likely explanation is that both stocks are just bouncing back from the drubbing that they each have taken over the past year. Even after this including this week's jump shares of both Mylan and Perrigo are down more than 30% from their 52 week highs and are trading for below market P/E ratios, so this move could just be the markets awarding these companies stocks a slightly higher multiple.
Now what?
If you're an investor looking for an ETF that can help you bulk up your exposure to the US pharmaceutical sector then you might want to give the iShares Dow Jones US Pharmaceuticals a closer look.
