Healthcare exchange-traded funds (ETFs) invest in a basket of stocks of companies that provide medical services, develop medical equipment or drugs, offer medical insurance, or facilitate the provision of healthcare to patients. Some notable companies in the healthcare sector include UnitedHealth Group Inc. (UNH), Pfizer Inc. (PFE), and Merck & Co. Inc. (MRK).
Because the majority of healthcare services and products are often seen as necessities rather than as discretionary purchases, the healthcare industry is considered noncyclical. This can make healthcare ETFs a strong position in a defensive portfolio.
- The healthcare sector underperformed the broader market over the past year.
- The healthcare exchange-traded funds (ETFs) with the best one-year trailing total returns are XLV, RYH, and IHF.
- The top holdings of these ETFs are Johnson & Johnson, Cerner Corp., and UnitedHealth Group Inc., respectively.
The healthcare ETF universe is composed of about 34 distinct ETFs that trade in the U.S., excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). As of Feb. 3, 2022, the healthcare sector, as measured by the S&P 500 Health Care sector index, has underperformed the broader market with a total return of 17.3% over the past 12 months compared with the S&P 500’s total return of 18.6%. The best healthcare ETF, based on performance over the past year, is the Health Care Select Sector SPDR Fund (XLV). We examine the top three healthcare ETFs below. All figures below are as of Feb. 3, 2022.
- Performance Over One-Year: 17.2%
- Expense Ratio: 0.12%
- Annual Dividend Yield: 1.36%
- Three-Month Average Daily Volume: 13,737,302
- Assets Under Management: $34.8 billion
- Inception Date: Dec. 16, 1998
- Issuer: State Street
XLV seeks to track the Health Care Select Sector Index, which gauges the performance of the healthcare segment of the U.S. equity market. The market-capitalization-weighted ETF provides exposure to companies that offer healthcare equipment, supplies, and services, as well as companies that operate within the biotechnology and pharmaceutical industries. It is focused on large cap growth stocks. The fund's top three holdings are Johnson & Johnson (JNJ), which develops medical devices, pharmaceuticals, and consumer packaged goods; UnitedHealth Group, which offs healthcare and insurance services; and Pfizer, a pharmaceutical and biotechnology company.
- Performance Over One-Year: 13.0%
- Expense Ratio: 0.40%
- Annual Dividend Yield: 0.44%
- Three-Month Average Daily Volume: 8,734
- Assets Under Management: $952.5 million
- Inception Date: Nov. 1, 2006
- Issuer: Invesco
RYH aims to track the S&P 500 Equal Weight Health Care Index, an index that equally weights stocks of companies operating within the healthcare sector of the S&P 500 Index. The equal-weighted ETF invests at least 90% of its total assets in stocks that comprise the index. It invests in companies that offer healthcare equipment, supplies, technology, and services, pharmaceutical and biotechnology companies, and companies operating within the life sciences tools and services industry. The fund follows a blended strategy, investing in a mix of value and growth stocks of various market caps. RYH's top three holdings are Cerner Corp. (CERN), a supplier of health information technology services, devices, and hardware; Viatris Inc. (VTRS), a pharmaceutical company; and Vertex Pharmaceuticals Inc. (VRTX), a biotechnology company.
- Performance Over One-Year: 12.3%
- Expense Ratio: 0.42%
- Annual Dividend Yield: 0.55%
- Three-Month Average Daily Volume: 19,019
- Assets Under Management: $1.2 billion
- Inception Date: May 1, 2006
- Issuer: BlackRock Financial Management
IHF tracks the Dow Jones U.S. Select Healthcare Providers Index, an index comprised of U.S. healthcare provider equities. The market-cap-weighted ETF's main exposure is to companies that offer managed healthcare and healthcare services. It also has some exposure to companies that operate healthcare facilities, provide healthcare technology, and companies in the life sciences tools and services industry. The fund follows a blended strategy of investing in a mix of growth and value stocks of companies with a range of market caps. IHF's top three holdings are UnitedHealth Group; CVS Health Corp. (CVS), which offers a range of healthcare services, including retail pharmacies; and Anthem Inc. (ANTM), a health insurance provider.
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