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We have identified the best healthcare ETFs on the market – from general to niche biotech exposure, we have got you covered.
Best Healthcare ETFs: Overview
Here’s a quick look at the best healthcare ETFs:
- Vanguard Health Care ETF (VHT)
- Health Care Select Sector SPDR Fund (XLV)
- iShares Biotechnology ETF (IBB)
- SPDR S&P Biotech ETF (XBI)
- iShares U.S. Medical Devices (IHI)
- ARK Genomic Revolution ETF (ARKG)
VHT and XLV are your general healthcare ETFs, while IBB and XBI are your biotech ETFs.
Below, we analyze these pairings to help you decide which is better for your portfolio – i.e., VHT vs. XLV and IBB vs. XBI, respectively.
Additionally, we explore one of the many healthcare subsector ETFs offered by BlackRock, the iShares U.S. Medical Devices ETF (IHI), and also cover the most ambitious fund in the space, the ARK Genomic Revolution ETF (ARKG).
Ok, let’s get to know the best healthcare ETFs.
Best Healthcare ETFs
#1. Vanguard Health Care ETF (VHT)
- 1-Year Performance: +5.13%
- Expense Ratio: 0.10%
- Annual Dividend Yield: 1.21%
- AUM: $16.71 billion
- 3 Month Avg. Volume: 324,944
- Number of Holdings: 445
- Inception Date: 2004
The Vanguard Health Care ETF comprises companies that manufacture health care equipment and supplies or provide healthcare-related services and companies involved in the research, development, production, and marketing of pharmaceuticals and biotechnology products.
VHT is the second largest healthcare exchange-traded fund by assets under managementand probably has the best combination of diversification and fees that you will find.
The most prominent sub-industries in VHT are as follows (as a percent of common stock): Pharmaceuticals (25%), Health Care Equipment (20%), Biotechnology (17%), and Life Sciences Tools & Services (14%).
Most of these are large-cap stocks. About 75% of VHT’s 445 holdings are large-cap stocks.
In our estimation, the Vanguard Health Care ETF best captures the performance of the entire healthcare sector.
VHT Top Holdings:
- UnitedHealth Group (UNH) 7.46%
- Johnson & Johnson (JNJ) 7.10%
- Pfizer (PFE) 5.22%
- Thermo Fisher Scientific (TMO) 4.14%
- Abbott Laboratories (ABT) 3.93%
#2. Health Care Select Sector SPDR Fund (XLV)
- 1-Year Performance: +14.24%
- Expense Ratio: 0.12%
- Annual Dividend Yield: 1.36%
- AUM: $34.79 billion
- 3 Month Avg. Volume: 13,737,302
- Number of Holdings: 66
- Inception Date: 1998
The Health Care Select Sector SPDR Fund (XLV) tracks an index of companies in the pharmaceuticals, health care equipment, and supplies, health care providers and services, biotechnology, life sciences tools and services, and health care technology industries.
XLV and the previously mentioned VHT are the only general healthcare ETFs that deserve your attention, at least according to our research. We’ll use this space to highlight their differences.
Perhaps their most notable difference is the number of stocks each holds – XLV has 66 holdings compared to 445 from VHT.
This results in XLV having a higher concentration in individual stocks, which arguably makes the ETF more volatile than VHT.
Next, both ETFs have similar sub-industries. They each lead with Pharmaceuticals and Healthcare Equipment; however, XLV has slightly less exposure to biotechnology.
Additionally, XLV companies are exclusively large caps, whereas VHT provides exposure to stocks of all sizes.
The differences between their expense ratios and dividend yieldsare pretty much negligible.
Generally speaking, the difference between XLV and VHT boils down to diversification.
XLV is invested in the industry’s established winners, and VHT is more generally invested across the entire space.
XLV Top Holdings:
- Johnson & Johnson (JNJ) 8.96%
- UnitedHealth Group (UNH) 8.90%
- Pfizer (PFE) 5.96%
- AbbVie (ABBV) 4.83%
- Thermo Fisher Scientific (TMO) 4.69%
#3. iShares Biotechnology ETF (IBB)
- 1-Year Performance: -24.32%
- Expense Ratio: 0.45%
- Annual Dividend Yield: 0.22%
- AUM: $8.85 billion
- 3 Month Avg. Volume: 2,692,597
- Number of Holdings: 376
- Inception Date: 2001
The iShares Biotechnology ETF provides exposure to U.S. biotechnology and pharmaceutical companies listed on the NASDAQ stock exchange.
IBB launched in 2001 and was the first biotech ETF to hit the market. Today, it is the largest fund of its kind.
A biotech ETF, like IBB, enables you to make directional bets on the entire space, which we believe is a superior strategy compared to playing the biotech lottery and owning individual biotech stocks.
Biotech moves fast, and the sector is notoriously volatile. Also, it’s not obvious where the next breakthrough will come from or who will have it.
To ensure that IBB sufficiently captures these breakthroughs, the fund invests across +370 equities in the industry.
However, it is highly concentrated in the biotech leaders such as Amgen, Gilead Sciences, and Moderna.
This concentration is the primary difference between IBB and the next biotech ETF that we will cover, the SPDR S&P Biotech ETF (XBI).
IBB Top Holdings:
- Amgen (AMGN) 10.65%
- Gilead Sciences (GILD) 7.40%
- Vertex Pharmaceuticals (VRTX) 5.75%
- Regeneron Pharmaceuticals (REGN) 5.74%
- Illumina (ILMN) 4.51%
#4. SPDR S&P Biotech ETF (XBI)
- 1-Year Performance: -46.21%
- Expense Ratio: 0.35%
- Annual Dividend Yield: 0.17%
- AUM: $6.44 billion
- 3 Month Avg. Volume: 11,492,211
- Number of Holdings: 191
- Inception Date: 2006
The SPDR S&P Biotech ETF provides concentrated exposure to small, mid, and large-cap stocks in the biotechnology sector.
Like we compared the general healthcare funds VHT and XLV, this section will compare IBB to XBI.
And much like the previous comparison, the main difference between IBB and XBI is their diversification.
While IBB has many more holdings than XBI (376 vs. 191), IBB is significantly more concentrated in its top ten holdings than XBI.
The top ten holdings in IBB make up 51% of the fund, while the top ten in XBI only account for 12% of the fund.
The top holding in XBI receives just a 1.76% allocation. The vast majority of XBI holdings have less than a 1% allocation in the fund.
As previously mentioned, the biotech industry is relatively unpredictable, and a company’s success is more binary in this industry than in other sectors of the economy.
Like IBB, XBI uses diversification to reduce these risks but approaches them differently.
Instead of including more stocks in the ETF, it spreads the assets more evenly.
It’s up to you to decide which method of diversification works best for your portfolio.
XBI Top Holdings:
- Arena Pharmaceuticals (ARNA) 1.76%
- Biohaven Pharmaceutical Holding Company (BHVN) 1.22%
- BioCryst Pharmaceutical (BCRX) 1.22%
- Vertex Pharmaceuticals (VRTX) 1.15%
- Incyte (INCY) 1.07%
#4. iShares U.S. Medical Devices (IHI)
- 1-Year Performance: +3.99%
- Expense Ratio: 0.41%
- Annual Dividend Yield: 0.79%
- AUM: $8.06 billion
- 3 Month Avg. Volume: 1,300,798
- Number of Holdings: 67
- Inception Date: 2006
The iShares U.S. Medical Devices ETF provides exposure to U.S. companies that manufacture and distribute medical devices.
IHI is one of the many healthcare sub-industry ETFs offered by iShares. They have a healthcare provider’s ETF, pharmaceuticals ETF, global healthcare fund, U.S. only healthcare ETF, and more, which we describe later.
We chose to include the medical devices fund because it’s the largest group and because medical device companies receive such a large allocation in the general healthcare ETFs.
Regardless, these subindustry funds enable more narrow exposure to a specific healthcare theme.
They offer some optionality for investors in this large sector of the economy.
IHI Top Holdings:
- Thermo Fisher Scientific (TMO) 16.47%
- Abbott Laboratories (ABT) 16.17%
- Medtronic (MDT) 9.66%
- Becton, Dickinson, and Company (BDX) 5.35%
- Boston Scientific Corp (BSX) 4.87%
#5. ARK Genomic Revolution ETF (ARKG)
- 1-Year Performance: -56.33%
- Expense Ratio: 0.75%
- Annual Dividend Yield: 1.07%
- AUM: $3.9 billion
- 3 Month Avg. Volume: 4,046,902
- Number of Holdings: 53
- Inception Date: 2014
The ARK Genomic Revolution ETF invests in companies focused on extending and enhancing the quality of human and other life by incorporating technological and scientific developments and advancements in genomics into their business.
More specifically, this includes gene therapy bioinformatics, bio-inspired computing, molecular medicine, and pharmaceutical innovations.
ARKG is unquestionably a biotech fund, but we don’t believe it should be compared to XBI and IBB.
Most holdings in ARKG are moonshot companies trying to solve remarkably difficult problems at the intersection of AI and biology.
The trajectory of human evolution will dramatically change when these companies, such as CRISPR Therapeutics, eventually succeed.
But it’s unlikely that they all will, or even a large percentage of them. However, betting against them collectively (in the long term) will likely put you on the wrong side of history.
This is what makes the biotech trade tough. These innovations will happen, but it’s a question of when and in what economic environment when you think about this from an investment perspective.
An excerpt from Ray Dalio’s latest book captures this dilemma. He writes:
All else being equal, equities in the companies making new inventions and the companies that benefit from them are the right ones to own if you want to bet on the evolution happening, but whether the returns to investors match the performance of the innovations depends on how governments decide to divide the profits of productivity. (Dalio, 2021).
He adds that “price matters,” saying that it is possible to invest in great companies and lose money because they are so expensive.
In sum, investing in biotech – especially the ARK Genomic Revolution ETF – requires a long-term time horizon.
ARKG Top Holdings:
- Exact Sciences (EXAS) 9.10%
- Teladoc Health (TDOC) 7.80%
- Ionis Pharmaceuticals (IONS) 5.56%
- Intellia Therapeutics (NTLA) 4.51%
- Vertex Pharmaceuticals (VRTX) 4.50%
Alternatives to the Best Healthcare ETFs
This section explores some alternatives to the six funds from above. As promised, the various health-care related ETFs from iShares are listed below, among others:
- iShares Global Healthcare ETF (IXJ)
- iShares U.S. Healthcare ETF (IYH)
- iShares U.S. Healthcare Providers (IHF)
- iShares U.S. Pharmaceuticals (IHE)
- VanEck Biotech ETF (BBH)
- Invesco S&P SmallCap Health Care ETF (PSCH)
- Global X Telemedicine & Digital Health (EDOC)
Hopefully, the name of the ETF effectively conveys the objective of the fund.
Best Healthcare ETFs: Frequently Asked Questions
What is a good healthcare ETF?
The Vanguard Healthcare ETF (VHT) or the Health Care Select Sector SPDR Fund (XLV) is a good healthcare ETF. They both provide diversified exposure across the entire healthcare industry.
What is the largest healthcare ETF?
The largest health care ETF is the Health Care Select Sector SPDR Fund (XLV) by assets under management. XLV has accumulated about $34.56 billion in total assets since its launch in 1998.
Is the Vanguard Healthcare ETF a good investment?
The Vanguard Healthcare ETF is a good investment if you want low-cost exposure to the entire healthcare sector. It is the second-largest healthcare ETF by assets under management and one of the best performing funds in the space.
Is there a pharma ETF?
There are several pharma ETFs that invest exclusively in the pharmaceutical subsector of the healthcare industry. The best performing pharma ETFs include the iShares Pharmaceuticals ETF (IHE), the VanEck Pharmaceutical ETF (PPH), and the Invesco Dynamic Pharmaceuticals ETF (PJP).
Bottom Line: Best Healthcare ETFs
There are many ways to gain exposure to the healthcare sector. Owning an ETF in this space versus owning individual stocks is probably the way to go from a risk perspective.
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This article is for informational purposes only, and it is not intended to be investment advice. Read our editorial guidelines and public equities research methodology to learn more about how we selected the best healthcare ETFs.
