Healthcare ETFs offer exposure to a broad spectrum of companies in areas such as pharmaceuticals, biotechnology, medical devices, and healthcare services. This diversification helps mitigate risk, providing stability even when individual stocks experience volatility.

Given this positive sentiment, investing in healthcare ETFs such as iShares Global Healthcare ETF (IXJ), Vanguard Health Care ETF (VHT), and Health Care Select Sector SPDR Fund (XLV) might be wise choices for broad sector exposure.

The growth of the healthcare services market is anticipated to be driven by factors such as a rising elderly population, accelerated economic development, advancements in technology, evolving lifestyles, improved survival rates, and a higher standard of living. The healthcare services market is projected to grow at a CAGR of 8.3% from 2024 to 2031.

Moreover, biotechnology supports the creation of biopharmaceuticals like monoclonal antibodies and gene therapies, in line with personalized medicine. Genetic marker-based diagnostics also enable early disease detection and prognosis, shifting healthcare toward more precise and individualized methods, creating further upside for the healthcare sector.

With that in mind, let’s look at the fundamentals of the top three Health & Biotech ETFs, beginning with the third choice.

ETF #3: iShares Global Healthcare ETF (IXJ)

IXJ measures the performance of companies that the index provider deems to be a part of the healthcare sector of the economy and that the index provider believes are important to global markets.

With $4.34 million in AUM, its top holdings are Eli Lilly and Company (LLY) with a 9.2% weighting, UnitedHealth Group Incorporated (UNH) at 6.7%, and Novo Nordisk A/S Class B at 5.4% weight.

The ETF’s expense ratio is 0.41%, compared to the category average of 0.52%. IXJ’s fund inflows were $24.38 million over the past month. The fund pays an annual dividend of $1.23, which translates to a 1.21% yield at the current price level.

IXJ has gained 11.7% over the past three months to close the last trading session at $101.25. It has a five-year beta of 0.70. The fund’s NAV was $100.50 as of September 4, 2024.

IXJ’s POWR Ratings reflect this promising outlook. The ETF’s overall A rating equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

The fund has an A grade for Trade, Peer, and Buy & Hold. IXJ is ranked #6 in the Health & Biotech ETFs group. Click here to access all the IXJ ratings.

ETF #2: Vanguard Health Care ETF (VHT)

VHT employs an indexing investment approach designed to track the performance of the MSCI US Investable Market Index (IMI)/Health Care 25/50, an index made up of stocks of large, mid-size, and small U.S. companies within the healthcare sector, as classified under the GICS.

The fund’s top holdings include LLY with a 10.3% weighting, UNH at 8.4%, followed by AbbVie, Inc. (ABBV) with a 5.2% weighting.

VHT’s trailing-12-month dividend of $3.56 yields 1.23% on the current price level, while its four-year average dividend yield is 1.29%. Its dividend payouts have grown at a 7.7% CAGR over the past three years.

The fund has an expense ratio of 0.10% compared to the category average of 0.52%. VHT’s fund outflows came in at $33.86 million over the past six months. Also, the ETF has a beta of 0.72.

VHT has gained 16.6% over the past year and 20.8% over the past nine months to close the last trading session at $288.10. As of September 4, 2024, VHT had an AUM of $18.90 billion and an NAV of $286.83.

VHT’s POWR Ratings reflect solid prospects. Its overall rating of A equates to a Strong Buy in our proprietary rating system.

VHT has an A grade for Buy & Hold and Trade and a B for Peer. Of the 42 ETFs in the same group, it is ranked #2. Get all VHT ratings here.

ETF #1: Health Care Select Sector SPDR Fund (XLV)

The Health Care Select Sector SPDR Fund seeks to provide precise exposure to companies in the pharmaceuticals, healthcare equipment and supplies, healthcare providers and services, biotechnology, life sciences tools and services, and healthcare technology industries.

The fund has $42.18 billion in assets under management (AUM). Its top holdings are LLY with a 13.1% weighting, UNH at 9.5%, and Johnson & Johnson (JNJ) at 6.9%.

XLV has an expense ratio of 0.09%, compared to the category average of 0.52%. Its fund inflows were $459.65 million over the past three months. Also, it has a beta of 0.69.

The fund pays an annual dividend of $2.23, translating to a 1.42% yield at the prevailing price level. Its dividend payouts have grown at an 8.23% CAGR over the past three years. The fund’s four-year average yield is 1.55%.

Over the past year, XLV has gained 16.6% to close the last trading session at $156.89. It has also gained 11% over the past three months. The ETF had an NAV of $157.23 as of September 4, 2024.

XLV’s solid fundamentals are reflected in its POWR Ratings. The fund has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

XLV has an A grade for Buy & Hold, Peer, and Trade. Among the 42 ETFs in the same group, it is ranked first. To access all of XLV’s POWR Ratings, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

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XLV shares were trading at $156.10 per share on Wednesday afternoon, down $0.80 (-0.51%). Year-to-date, XLV has gained 15.32%, versus a 16.94% rise in the benchmark S&P 500 index during the same period.

About the Author: Nidhi Agarwal

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...

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