A Structural Analysis of PJP, a Smart Beta Healthcare Fund
Use of concentration policy
As of November 2015, the PowerShares Dynamic Pharmaceuticals ETF (PJP) was one of the top-performing smart beta ETFs in the market. PJP manages a subtle portfolio of 30 common stocks primarily from the pharmaceutical industry that have strong potential for capital appreciation. The index provider also follows a concentration policy, which clearly defines that the fund will concentrate its assets in companies that its underlying Intellidex index defines as belonging to the pharmaceutical subsector.
The fund currently manages a total net asset of $1.63 billion, which is distributed across the pharmaceutical, biotechnology, and healthcare products subsectors. The pharmaceutical subsector represents 58.41% of the whole PJP, which clearly defines it as a pharmaceutical sectoral fund.
Moving averages and earnings
Bristol-Myers Squibb Company (BMY), Johnson & Johnson (JNJ), Pfizer (PFE), Amgen (AMGN), and Gilead Sciences (GILD) represent the top five holdings of PJP. As of early November 2015, the pharmaceutical subsector, which is the heaviest-weighted subsector of PJP, was trading above its 20-day, 50-day, and 100-day moving averages due to high earnings, which beat analyst estimates by 8.94% in 3Q15.
The biotechnology sector—the other major component of PJP—was also trading above its 20-day average, but it was trading below its 50-day and 100-day moving averages due to the sector’s poor performance in 3Q15. The biotechnology subsector, however, looks strong as its earnings in 3Q15 beat analyst estimates by 11.09%.
In the next and final part of this series, we’ll analyze the benefits and risks of investing in PJP.
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