A strong 2017 and a positive first eight months of 2018 has made the healthcare sector appealing, with many companies offering solid balance sheets, attractive dividend yields, and upbeat outlooks. Demand is on the rise for healthcare products and services, and companies in this sector are flush with cash – all of which means better dividend yields and even stock buybacks that enhance shareholder value.

However, questions about the future of the Affordable Care Act and what might replace it are likely to keep the sector volatile over the year. So far, the sector has done well in the first eight months of 2018, even as the Republican administration's vow to "repeal and replace" the ACA has hit repeated roadblocks. (For related insight, read more about healthcare ETFs' modestly higher valuations.)

With the sector turning in a strong performance – despite policy-related uncertainty – the fall of 2018 might be the perfect time to dip your toes into the healthcare market. Take a look at these top healthcare exchange-traded funds (ETFs) that could be ready to gain on a bullish market. Funds were chosen on a combination of 2017 and current year-to-date (YTD) performance and assets under management. All figures were current as of September 9, 2018.

1. Health Care Select Sector SPDR ETF (XLV)

  • Issuer: State Street Global Advisors
  • 2017 performance: 21.77%
  • 2018 YTD performance: 13.03%
  • Net assets: $18.31 billion
  • Expense ratio: 0.14%

XLV tracks the healthcare stocks in the S&P 500, weighted by market cap. It is the oldest fund in this segment and by far the largest. As a reflection of the U.S. healthcare market, this fund is hard to beat. It stands head and shoulders above its peers by nearly every metric – including liquidity and holding costs.

Of course, drawing from the S&P 500, the fund is heavily weighted toward mega caps – think Johnson & Johnson (JNJ), Pfizer Inc. (PFE) and UnitedHealth Group Incorporated (UNH). XLV is fairly concentrated, with the top 10 holdings making up 49% of the fund's portfolio of 63 equities. XLV's one-year, three-year and five-year annualized returns are solid at 15.84%, 11.29%, and 15.24%, respectively. (For more insight, read about what's making traders bullish on healthcare.)

2. Vanguard Health Care Index Fund (VHT)

  • Issuer: Vanguard
  • 2017 performance: 23.26%
  • 2018 YTD performance: 15.6%
  • Net assets: $9.87 billion
  • Expense ratio: 0.10%

Cheap and diversified, VHT holds 372 equities comprising the MSCI U.S. Investable Market Health Care 25/50 Index. It pulls healthcare stocks – pharmaceuticals, biotech, medical equipment, software and IT – from the top 98% of the total U.S. stock market capitalization. The ETF is still somewhat concentrated, however, with the top 10 holdings accounting for almost 42% of the fund's portfolio.

As with all Vanguard funds, VHT publishes its holdings only once a month, so there's less transparency compared with other funds. However, for buy-and-hold investors, that's rarely a problem. VHT offers broad exposure to the healthcare sector with a very friendly price tag. Its one-year, three-year and five-year annualized returns are 18.80%, 11.91%, and 16.10%, respectively. (For related insight, explore our comparison of XLV and VHT, two notable healthcare ETFs.)

3. SPDR S&P Biotech ETF (XBI)

  • Issuer: State Street Global Advisors
  • 2017 performance: 43.77%
  • 2018 YTD performance: 18.14%
  • Net assets: $5.89 billion
  • Expense ratio: 0.35%

This fund takes a novel approach to the U.S. biotech sector – it equal weights its portfolio, so performance is more tightly tied to small-cap companies, some of which have yet to bring a drug to market. The approach appears to be working, however, since XBI's impressive one-year, three-year and five-year annualized returns (19.71%, 10.94%, and 20.91%, respectively) are crushing the competition.

XBI is a bit more expensive to own than other funds, but it's still relatively efficient for a straight sector play that tilts toward small caps. There are currently 114 equities in its basket of holdings, and the top 10 holdings account for just 15% of the fund's portfolio.

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