Healthcare ETFs offer investors diversified exposure to the healthcare sector, encompassing pharmaceuticals, biotechnology, medical devices, and healthcare services. The healthcare industry has long been considered a defensive sector due to its non-cyclical nature. Regardless of the economic conditions prevailing in the economy, people need medical care, and that leads to consistent revenue streams for the healthcare sector.
Amid this backdrop, let’s look at the fundamentally sound healthcare ETFs Fidelity MSCI Health Care Index ETF (FHLC), iShares U.S. Healthcare ETF (IYH), and Vanguard Health Care Index Fund ETF Shares (VHT) that are poised for robust growth.
The global healthcare services market is anticipated to reach $22.57 trillion by 2031, exhibiting a CAGR of 8.3%. Innovations in biotechnology, the rise of telemedicine, and advancements in personalized medicine are causing the shift in the industry. Furthermore, the aging global population and increased healthcare spending in emerging markets present significant growth opportunities.
ETFs allow participants to spread their investments across multiple companies, reducing single-stock risk. Similarly, healthcare ETFs include companies pioneering the trends in technological advancements, allowing investors to capitalize on growth without needing to pick individual stocks. It also provides exposure to a variety of sub-sectors, from large-cap pharmaceutical firms to emerging biotech innovators, reducing risk and position to investors.
Given these encouraging trends, let’s look at the fundamentals of the top three Health & Biotech ETFs, beginning with number 3.
ETF #3: Fidelity MSCI Health Care Index ETF (FHLC)
FHLC seeks to track the performance of the MSCI USA IMI Health Care 25/50 Index. Managed by Fidelity Management & Research Company LLC and co-managed by BlackRock Fund Advisors, the fund invests in companies within the healthcare sectors. It includes a mix of value and growth stocks from companies of various market capitalizations.
As of December 4, 2024, the fund had $2.84 billion in assets under management (AUM) and an NAV of $69.88. FHLC has an expense ratio of 0.08%, compared to the category average of 0.52%.
The fund’s top holdings include Eli Lilly and Company (LLY) with a 10.26% weighting, UnitedHealth Group Incorporated (UNH) at 9.00%, Johnson & Johnson (JNJ), and AbbVie, Inc. (ABBV) at 5.96% and 5.16%, respectively. It currently has a total of 369 holdings.
The fund pays an annual dividend of $0.95, translating to a 1.38% yield at the prevailing price level. The fund’s four-year average yield is 1.33%. Its dividend payouts have grown at an 8.4% CAGR over the past five years.
Over the past five days, the fund’s net outflow came in at $24.04 million. It has gained 11.4% over the past year to close its last trading session at $69.07.
FHLC’s POWR Ratings reflect its robust prospects. The ETF has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It also has an A grade for Buy & Hold and a B for Trade. Of the 42 ETFs in the Health & Biotech ETFs group, FHLC is ranked #24. To access all of FHLC’s POWR Ratings, click here.
ETF #2: iShares U.S. Healthcare ETF (IYH)
IYH invests in stocks of companies operating across healthcare sectors and tracks the Russell 1000 Health Care RIC 22.5/45 Capped Index. BlackRock Fund Advisors manages this fund.
With $3.27 billion in AUM, its top holdings are LLY with an 11.68% weighting in the fund, UNH at 9.98% weight, followed by JNJ and ABBV with 6.59% and 5.77% weightings, respectively. The ETF has a total of 106 holdings.
The ETF's expense ratio is 0.39%, lower than the category average of 0.52%. IYH fund outflow was $12.33 million over the past five days.
IYH pays an annual dividend of $0.70, which translates to a 1.15% yield at the current price level. The fund’s dividend payouts have grown at an 8% CAGR over the past three years. Its four-year average yield is 1.11%.
Over the past year, IYH has gained 11% to close the last trading session at $61.23. The fund’s NAV was $61.24 as of December 5, 2024.
IYH’s solid fundamentals are reflected in its POWR Ratings. The fund has an overall rating of B, which translates to a Buy in our proprietary rating system.
The fund has an A grade for Buy & Hold and a B for Trade. IYH is ranked #23 in the same group. Click here to access all the IYH ratings.
ETF #1: Vanguard Health Care Index Fund ETF Shares (VHT)
Vanguard Group, Inc. manages VHT. The fund invests in growth and value stocks of companies that are operating across healthcare sectors. It seeks to track the performance of the MSCI US Investable Market Index (IMI)/Health Care 25/50.
As of December 4, VHT had $20.60 billion in AUM. It had an NAV of $267.75 as of December 5. Its expense ratio of 0.10% compares to the category average of 0.52%.
The fund’s top holdings include LLY with a 10.82% weight, UNH with an 8.38% weight, ABBV with a 5.26% weight, and JNJ with a 4.69% weight. It has a total of 413 holdings.
VHT’s trailing-12-month dividend of $3.85 yields 1.44% on the current price level, while its four-year average dividend yield is 1.30%. Its dividend payouts have grown at a 7.4% CAGR over the past three years.
VHT has gained 11.4% over the past year and 6.8% year-to-date to close the last trading session at $267.86. Its fund outflow came in at $73.67 million over the past five days.
VHT’s promising outlook is reflected in its POWR Ratings. The ETF has an overall A rating, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Buy & Hold and a B for Trade. It is ranked #20 out of 42 ETFs in the same Health & Biotech ETFs group. To see the POWR Ratings of VHT, click here.
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VHT shares were trading at $266.87 per share on Friday afternoon, down $0.99 (-0.37%). Year-to-date, VHT has gained 7.61%, versus a 29.04% rise in the benchmark S&P 500 index during the same period.
About the Author: ShreyaRathi
