A Structural Analysis of PJP, a Smart Beta Healthcare Fund
PJP versus PBE
Smart beta funds follow a passive approach to investing in an actively managed index. The PowerShares Dynamic Pharmaceuticals Portfolio (PJP) seeks to track the performance Dynamic Pharmaceutical Intellidex Index, and as implied by the name, the fund’s major constituents are from the pharmaceutical subsector.
Invesco’s own PowerShares Dynamic Biotechnology & Genome Portfolio (PBE) is a related healthcare ETF. Similar to PJP, PBE’s index provider primarily selects biotechnology stocks for its portfolio. The chart below presents a fund flow-to-volume analysis of both PJP and PBE.
Strong inflow of funds
Fund flow analysis is a major indicator for identifying an ETF’s demand on the market. The graph above clearly indicates that PJP saw healthy growth in its volume and fund inflows compared to PBE as of November 2015. Fiscal 2003 saw the highest fund inflow for PJP, and volumes traded per day grew strongly in 2014 for both PJP and PBE, falling in 2015 due to poor economic conditions. PBE thus showed a complete trend reversal in its volume growth during the above period.
The top holdings of PJP include pharmaceuticals stocks such as Bristol-Myers Squibb Company (BMY), Pfizer (PFE), and Merck & Company (MRK). PBE, on the other hand, has Regeneron Pharmaceuticals (REGN), Incyte Corporation (INCY), Vertex Pharmaceuticals (VRTX) among its top holdings. The pharmaceutical subsector is the heaviest-weighted sector of PJP, whereas it is the second-heaviest sector of PBE.
In the next part of this series, we will do a more detailed breakdown and analysis of PJP’s holdings.
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