The benchmark S&P 500 Health Care Sector Index is up 6.3% in 2024 as of Feb. 15, slightly outpacing the S&P 500, which stands at 5.5% over the same time frame.
Make no mistake: The U.S. health care sector is a crucial cog in the U.S. economy. Health care spending, which accounts for 17.3% of the U.S. gross domestic product, rose to $4.5 trillion in 2022 — which is approximately $13,493 per U.S. citizen, according to the Centers for Medicare & Medicaid Services. The U.S. over-age-65 demographic is expected to rise from 14% in 2012 to over 21% in 2032 (that demographic tends to spend more on health care than other age groups in the U.S.).
Meanwhile, the health care system has stabilized after three years of fighting the COVID-19 pandemic. Hospitals, health care clinics and industry manufacturers are also busy creating breakthrough drugs and treatments like Novo Nordisk A/S’ (ticker: NVO) weight-loss drug Ozempic and Roche Holding AG’s (ROG.SW) cancer drug Tecentriq.
“Demand for health care products and services is expected to remain very strong in 2024,” says Curtis Congdon, president of XML Financial Group in Falls Church, Virginia. “While the slowdown in demand for COVID-related treatments hurt many of the largest health care companies, the industry has been able to transition to other therapies likely to be in high demand for years to come.”
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The sector has also morphed into a moneymaking powerhouse right up there with any significant market sector. “While some investors think of health care as a value-oriented dividend play, the industry has evolved into more of a growth orientation and now trades at above-S&P 500 valuations and a sub-2% yield,” Congdon states.
Add it all up, and it’s increasingly clear that the health care sector is operating from a position of unprecedented strength in 2024. That gives profit-minded investors a shot at some of the biggest health care names in the world via industry exchange-traded funds this year, with the ETFs below worth a closer examination.
Here are six of the best health care ETFs to buy now:
| HEALTH CARE ETF | EXPENSE RATIO | 30-DAY SEC YIELD |
| iShares Global Healthcare ETF (IXJ) | 0.42% | 1.3% |
| Vanguard Health Care Index Fund (VHT) | 0.1% | 1.4% |
| Health Care Select Sector SPDR Fund (XLV) | 0.09% | 1.5% |
| Invesco S&P 500 Equal Weight Health Care ETF (RSPH) | 0.4% | 0.6% |
| SPDR S&P Biotech ETF (XBI) | 0.35% | 0% |
| iShares U.S. Medical Devices ETF (IHI) | 0.4% | 0.6% |
iShares Global Healthcare ETF (IXJ)
Any major health care ETF should stand out in critical areas, and IXJ is no different. “Investors should seek desirable features of an ETF that apply to health care and all other market sectors, including their being low-cost, highly liquid, traded with a narrow bid-ask spread and maintaining a strict adherence to their investment mandate,” Congdon says.
IXJ fits the bill there and then some. The fund offers a robust array of traditional health care mainstays among its 114 holdings, such as UnitedHealth Group Inc. (UNH), and growth-oriented biotech stocks like Novo Nordisk and AstraZeneca PLC (AZN). It also holds a healthy portion of up-and-coming health care stocks in emerging areas such as robotics and artificial intelligence.
The fund routinely bests its category index in one-, three-, five- and 10-year time frames. IXJ also offers global holdings that set the fund apart from its industry peers (30% are overseas companies).
Vanguard Health Care Index Fund (VHT)
VHT is up 14.7% over the past three months as of Feb. 15, although the fund has only gained 6.1% on a year-to-date basis. That’s mainly due to ongoing angst as investors assess the U.S. economy in what promises to be a volatile presidential election year.
The Vanguard Health Care Index Fund has historically been a reliable and popular performer, accumulating $17.8 billion in assets since it rolled out in 2004, making VHT one of the more sizable health care ETFs. The fund is also one of the most inexpensive in the health care sector, with an expense ratio of 0.1%.
While the fund has generated limited gains in 2024, it has earned an 11.1% annualized return over 10 years.
VHT offers some downside defensive support when the markets slide, and it also takes advantage of long-term trends that appear to be kicking in for the health care sector in 2024.
“VHT is a good example of a general health care ETF that is large, liquid and has a low expense ratio,” says Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors in Manhattan Beach, California.
Health Care Select Sector SPDR Fund (XLV)
This health care fund giant is up 11.7% over the last year as of Feb. 15, making XLV one of the better sector performers of late. The fund holds health care industry stalwarts like UnitedHealth Group, Eli Lilly & Co. (LLY), Johnson & Johnson (JNJ) and Merck & Co. Inc. (MRK). Together, those four stocks compose about 33% of the entire fund.
While owning a fund overweighted with a handful of stocks can be risky, XLV should continue to be a top performer in 2024. During the current earnings season, 77% of health care stocks have beaten analyst expectations, and 92.3% have exceeded revenue projections. That’s a good sign for health care stocks and an equally good indicator that sector funds like XLV are likely to continue to prosper in 2024.
The fund also keeps risk down by diversifying its lineup among pharmaceuticals, health care providers and services, and equipment and supply stocks.
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Invesco S&P 500 Equal Weight Health Care ETF (RSPH)
This Invesco-managed fund tracks the S&P 500 Equal Weight Health Care Index. It’s a “pure play” fund, with 100% of its holdings in health care-specific companies like UnitedHealth Group, Centene Corp. (CNC) and pharmacy giant CVS Health Corp. (CVS), among others.
The fund holds about $1 billion in total net assets and continues to outperform in early 2024, with the fund up 15.3% in the last three months. It has a relatively low expense ratio of 0.4%.
The fund holds 64 stocks, offering broad exposure to the health care market, and no one stock takes up more than 2.5% of the portfolio. Catalent Inc. (CTLT) and Align Technology Inc. (ALGN) are the fund’s top two holdings, cumulatively accounting for just 4% of the fund’s total assets.
SPDR S&P Biotech ETF (XBI)
This fund’s results generally track the S&P Biotechnology Select Industry Index, which primarily includes companies in the biotechnology segment of the S&P Total Market Index.
XBI has roared higher since mid-November, returning 31.2% over the past three months as of Feb. 15.
The fund is diversified, holding 124 stocks, thus spreading the risk around with no stock making up more than 3% of the entire portfolio. Cytokinetics Inc. (CYTK) is the fund’s most significant component, at 2.6% of all XBI assets.
This SPDR fund also uses a modified equal-weighting strategy to strike an optimal balance between small-, mid- and large-cap stocks, emphasizing biopharma stocks.
Be aware that this fund, with its exposure to smaller companies, may have a tendency to be more volatile, and may track the performance of a benchmark like the Russell 2000 more than the S&P 500. Still, investors should expect more stability as the overall U.S. economy improves.
“Lower interest rates or an economic rebound may help some of health care’s more beaten-down sectors of equipment, biotech and small cap for funds like XBI,” Schulman says.
iShares U.S. Medical Devices ETF (IHI)
The iShares U.S. Medical Devices ETF is a passively managed fund tracking the Dow Jones U.S. Select Medical Equipment Index, giving fund investors targeted access to medical device stocks. The fund holds 55 U.S. companies that manufacture and distribute medical devices, with a reasonable expense ratio of 0.4%.
The fund is up 18.3% in the last three months as of Feb. 15, as the medical device market rebounded after a soft third quarter of 2023. The U.S. economy has improved, and the medical hardware sector has primarily overcome its two-year-long supply chain issues.
At $5.5 billion in assets, this BlackRock-run ETF is one of the largest funds targeting the medical device market, but clouds could be forming on the horizon.
That’s due to the rise of weight-loss drugs like Ozempic and Wegovy, which are proving to be popular with the public. It’s early in the game, but if weight-loss drugs prove reliable and durable in combating obesity, then the need for heart disease procedures and sleep apnea protocols may be significantly reduced.
The main issue holding weight-loss drugs back is their exorbitant price tag, with Ozempic clocking in at $980 per month and Wegovy at up to $1,300 per month. If weight-loss prices fall or if insurers and employers start covering their costs for consumers, that could negatively impact medical device-oriented funds like IHI.
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6 Best Health Care ETFs to Buy Now originally appeared on usnews.com
Update 02/16/24: This story was previously published at an earlier date and has been updated with new information.
