These health care funds offer different approaches.
To say that 2020 has been a year with a focus on health care is a massive understatement. As the pandemic has disrupted education, the economy and even politics, there is perhaps no single sector more closely watched right now — and as a result, the best health care exchange-traded funds have been getting a lot of attention, too. Before investors just dive right in, it’s important to understand how the top health care ETFs differ in their makeup and investing strategy. Here are seven of the best health care ETFs to buy right now, and how they might fit in to your portfolio.
Health Care Select Sector SPDR Fund (ticker: XLV)
The largest health care ETF by assets, the Health Care Select Sector SPDR ETF is in fact one of the largest funds by any measure on Wall Street with total assets of nearly $23 billion under management and 63 total holdings. The fund is weighted by size, however, so the biggest names in the health care sector get a bit of extra emphasis. For instance, diversified health products firm Johnson & Johnson (JNJ) and insurance giant UnitedHealth Group (UNH) together make up roughly 17% of the total portfolio at present. XLV has an annual expense ratio of 0.13%, or $13 per year on every $10,000 invested.
Vanguard Health Care ETF (VHT)
This $13 billion Vanguard ETF is very similar to the XLV fund, which is roughly twice its size. While slightly cheaper in its annual fees (it has a 0.1% expense ratio) and with a deeper bench of total holdings (around 430), the top positions look remarkably similar because this fund, too, is structured to place emphasis on the very biggest U.S. health care stocks. This time, however, JNJ and UNH only represent about 14% of the portfolio and admittedly many more names pop up as you move down the list of total holdings, including pharmaceutical stocks Merck (MRK) and Pfizer (PFE).
iShares Nasdaq Biotechnology ETF (IBB)
Particularly as the emphasis of the health care sector in 2020 has been on the development of a virus vaccine, biotech stocks have been on the minds of many investors. This iShares biotechnology fund is the oldest and most popular way to play the sector, with an inception date of 2001, 203 holdings and billions more in total assets than other broad sector funds out there at $9 billion under management. Top holdings at present include popular names such as Gilead Sciences (GILD), Amgen (AMGN) and Regeneron Pharmaceuticals (REGN). IBB has an expense ratio of 0.46%.
SPDR S&P Biotech ETF (XBI)
If you want to play biotech but you’re more interested in the true growth potential of the sector, this $5 billion XBI fund may be more appealing than its larger cousin offered by iShares. That’s because XBI is one of the few health care funds to take an “equal weight” approach — that is, the fund regularly rebalances so that no single stock becomes overly important. Sure, occasionally a stock that races up in value naturally becomes a bit more of the portfolio. But at present, no single company represents more than 1.7% of the entire portfolio. That allows the smaller names to have an equal seat at the table as much larger peers. With 139 holdings total, XBI comes with an expense ratio of 0.35%.
iShares U.S. Medical Devices ETF (IHI)
Slicing the health care sector up a different way is IHI, an $8 billion fund that’s focused on devices and medical technology more than pills or injectable drugs. Its top holdings differ from the other funds thanks to this strategy, with stocks such as Thermo Fisher Scientific (TMO) and Abbott Laboratories (ABT) as top positions. However, this is another fund that weighs holdings by market value and is pretty top-heavy as a result. Case in point: that pair of stocks among 63 total holdings represents about 28% of the portfolio at present. Still, for those looking beyond Big Pharma, this health care ETF is worth a look. IHI has an expense ratio of 0.42%.
ARK Genomic Revolution ETF (ARKG)
This ARK fund has some limitations, both as the smallest ETF by total holdings on this list and the most expensive as measured by annual fees, as its expense ratio is 0.75%. However, it’s undeniably popular with $3 billion in assets under management and a sophisticated strategy that focuses solely on next-generation cures and the gene therapy companies that research them. Many of the 40-plus stocks in this ETF such as Invitae Corp. (NVTA) and Crispr Therapeutics (CRSP) may be names you’ve never heard of, and ARKG allows investors easy access to these dynamic companies in one single fund.
iShares Global Healthcare ETF (IXJ)
Any list of the best health care ETFs must acknowledge that the U.S isn’t the only place that has fast-growing and profitable stocks in this sector. IXJ offers a broad approach across all geographies, focusing on dominant health care players regardless of where they are headquartered. Once again, the $370 billion powerhouse JNJ is the single-largest position. But you’ll also find stocks like the $285 billion Swiss pharma giant Roche Holding AG (ROG) among the top positions of the fund’s 111 holdings. This adds geographic diversification to your health care investing strategy. IXJ has an expense ratio of 0.46%.
Seven of the best health care ETFs to buy now:
— Health Care Select Sector SPDR Fund (XLV)
— Vanguard Health Care ETF (VHT)
— iShares Nasdaq Biotechnology ETF (IBB)
— SPDR S&P Biotech ETF (XBI)
— iShares U.S. Medical Devices ETF (IHI)
— ARK Genomic Revolution ETF (ARKG)
— iShares Global Healthcare ETF (IXJ)
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