New ETF Is A Refined Pharmaceuticals Play

In recent years, exchange-traded funds tracking the healthcare sector, the third-largest sector weight in the S&P 500, have become increasingly refined.

For example, since late 2014, ETFs have come to market that offer investors exposure to biotech stocks at specific stages of FDA clinical trials. Last year, an ETF debuted dedicated to stocks with heavy emphasis on cancer drugs and treatments.

The New Name

So, the Market Vectors Generic Drugs ETF GNRX, which launched Wednesday, is by no means an outlandish concept. Given the boom in the generic drugs industry over the past several years and the group's status as a prime destination for large-scale mergers and acquisitions activity, the Market Vectors Generic Drugs ETF is actually an idea that makes a lot of sense.

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“Expiring patents on various brand name drugs and the development of biosimilars are among the main factors driving returns in the generic pharmaceuticals space. Significant investment in research and development is still required, which reduces competition, but time to market can be quicker than brand name drugs, allowing companies to price their drugs at a significant discount,” said Market Vectors in a statement.

“As a percentage of drugs distributed globally, spending on generics is expected to increase from 40 percent in 2013 to 46 percent in 2018.”

The Fund And Its Index

The new ETF tracks the Indxx Global Generics & New Pharma Index. That benchmark “is intended to track the overall performance of companies that derive a significant proportion of their revenues or that have the potential to derive a significant proportion of their revenues from the generic drug industry, or that have a primary business focus on the generic drug industry,” according to Market Vectors.

GNRX is home to 84 stocks and its top 10 holdings combine for nearly 48 percent of the new ETF's weight. Israel's Teva Pharmaceutical Industries Ltd (ADR) TEVA is GNRX's largest holding. Other well-known names in the new ETF include Allergan plc Ordinary Shares AGN, Perrigo Company plc Ordinary Shares PRGO and Mylan NV MYL.

GNRX is a global ETF with just under 41 percent of its weight allocated to U.S. stocks. The bulk of the ETF's ex-U.S. Exposure is allocated to emerging markets companies, as India, South Korea and China combine for over 31 percent of the fund's weight.

“According to the Generic Pharmaceutical Association (GPhA), 88 percent of the drugs dispensed in the U.S. are generics,” according to Market Vectors.

The new ETF charges 0.55 percent per year, or $55 for every $10,000 invested. Other healthcare ETFs from Market Vectors include the Market Vectors Biotech ETF BBH and the Market Vectors Pharmaceutical ETF PPH.