Health care stocks are picking up steam in 2024, after a lackluster 2023 during which the S&P 500 Health Care Index underperformed with a 2% total return against a 24% return for the S&P 500.
Through June 21, the S&P 500 Health Care Index is up 7.3% versus 14.6% for the broader S&P 500. That’s not ideal for health care sector investors. On Wall Street, however, the trend is your friend, as health care stocks are finally moving in the right direction.
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Yet risks abound. It’s not exactly easy to invest in the health care industry, especially for new investors unfamiliar with a highly regulated sector and its labyrinth of red tape. The sector is also fraught with confusion not just for health care consumers but for doctors, clinicians and administrators.
Choosing investments in a health care sector loaded with opportunities is no picnic, either. Options include life sciences companies producing the next big drug, hospitals and clinics treating the sick and injured, medical device firms working on new tools and treatment technologies, and insurance companies tasked with figuring out the financial side of the health care maze.
That’s why sector investors may want to launch their health care investment experience by bundling their health care stocks in a single industry exchange-traded fund, or ETF. The costs are lower, and the potential downsides can be moderated by choosing health care funds over individual sector stocks.
Which health care ETFs make the cut in a highly volatile industry? Start with these six bellwether ETFs that could offer healthier gains for the rest of 2024:
| Health care ETF | Expense ratio* | 30-day SEC yield |
| iShares Global Healthcare ETF (ticker: IXJ) | 0.42% | 1.3% |
| Vanguard Health Care ETF (VHT) | 0.10% | 1.4% |
| Health Care Select Sector SPDR ETF (XLV) | 0.09% | 1.5% |
| Invesco S&P 500 Equal Weight Health Care ETF (RSPH) | 0.40% | 0.7% |
| SPDR S&P Biotech ETF (XBI) | 0.35% | 0.04% |
| iShares U.S. Medical Devices ETF (IHI) | 0.40% | 0.5% |
*The net expense ratio is the percentage an investor will pay annually for the operating expenses of the fund. For example, a 0.42% expense ratio represents $42 for every $10,000 invested.
iShares Global Healthcare ETF (IXJ)
This health care fund holds $4 billion in assets and includes some of the biggest names in the industry. Eli Lilly & Co. (LLY), UnitedHealth Group Inc. (UNH) and Novo Nordisk A/S (NVO) comprise about 20% of the fund.
The fund leans heavily into biotech names, which, aside from LLY and NVO, include big industry brands such as Johnson & Johnson (JNJ), which makes up 4.5% of fund assets, Merck & Co. (MRK) at 4.3% and AbbVie Inc. (ABBV) at 4% of the fund. It also holds a healthy portion of up-and-coming health care stocks in emerging areas such as robotics and artificial intelligence. AI is becoming a powerful force in health care, particularly in biotechnology, which leverages AI to read data faster and manage drug development processes more efficiently.
The fund routinely bests its category index in one-, three-, five- and 10-year timeframes, and offers multiple global holdings that set it apart from its industry peers. At a 0.42% net expense ratio, IXJ is a tad expensive compared to its peers. Still, it does offer a nice 1.3% dividend yield, bringing a guaranteed income factor to the investor experience.
Vanguard Health Care ETF (VHT)
One of the larger health care ETFs, VHT holds $17.8 billion in assets and comes with a low net expense ratio of 0.1%. The fund has largely mirrored the S&P Health Care Index, with VHT returning 7.1% so far in 2024 (the fund mostly holds health and biotech stocks).
Like IXJ, the Vanguard Health Care ETF is accumulating artificial intelligence stocks in 2024, signaling its intention to capitalize on a technology that allows sector companies to create new products that unlock new ways to beat diseases and help people live longer and healthier lives.
It’s also a born performer. Since its inception in 2004, the fund has delivered an annualized return of 9.9%. In the past 15 years, VHT has had annualized gains of 14.1%. At a 0.64 beta, it offers lower volatility than its competition as well. (A fund’s beta measures the impact of market volatility. For every 1% shift in the market, VHT’s performance changes at a relatively low 0.64%.)
If you’re looking for a low-cost health care ETF that offers a good dividend yield (at 1.4%) and embraces technology that promises to improve health care services and patient outcomes for decades, then schedule an appointment with VHT.
Health Care Select Sector SPDR ETF (XLV)
This health care fund giant is up 8.1% in 2024 through June 21, surpassing its three-year average of 7.1%. The fund holds health care industry stalwarts like UnitedHealth Group, Eli Lilly, Johnson & Johnson and Merck. Together, those four stocks compose about 34% of the entire fund.
The fund is another whopper asset-wise, holding $39.5 billion in total assets. Like VHT, it offers a cost-friendly expense ratio of 0.09% while delivering an ample 1.5% yield.
XLV was launched in 1998 and has maintained its commitment to being a passively managed fund that offers investors an inexpensive entryway into large health care stocks. The fund also reduces risk by diversifying its lineup among pharmaceuticals, health care providers and services, and equipment and supply stocks.
Its fund strategy may be vanilla, but safety-minded investors don’t mind. Its 10-year annualized return by net asset value stands at 11% against 8.8% for the broader health care sector. Toss in a decent dividend and the low cost of entry, and XLV should be attractive for years to come.
Invesco S&P 500 Equal Weight Health Care ETF (RSPH)
At $955 million in assets, the Invesco S&P 500 Equal Weight Health Care ETF is one of the smaller health care funds on the market. Its returns aren’t sizable this year, either, at 2.5% on a year-to-date basis.
But with a 0.4% expense ratio, RSPH is cheaper than most funds in its category, which average about 1% on an annual basis.
The fund tracks the S&P 500 Equal Weight Health Care Index and is what Wall Street calls a “pure play” fund. It holds 100% of its holdings in health care-specific companies such as UnitedHealth Group, Centene Corp. (CNC) and pharmacy giant CVS Health Corp. (CVS), among others. Fund managers tend to hold on to the fund’s stocks longer than some competitors do (the fund’s turnover rate is 26%), which offers skittish investors some needed stability.
The fund holds 64 stocks, offering broad exposure to the health care market. No one stock takes up more than 2.2% of the portfolio. Moderna Inc. (MRNA) and Eli Lilly 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 track the S&P Biotechnology Select Industry Index, which primarily includes companies in the biotechnology segment of the S&P Total Market Index. XBI particularly favors smaller and midsize biotech companies, which adds a higher element of risk to the fund.
XBI’s returns have rebounded a bit in 2024, to 3.7% by net asset value through June 21. The slower performance earlier in the year was primarily due to the biotech sector’s performance slide as COVID-19 vaccines have lost their luster and as life sciences companies look to refill their product pipelines. The benchmark S&P Biotechnology Select Industry Index is up 3.6% year to date. As the large biotech market goes, so goes XBI.
The fund uses a modified equal-weighting strategy to balance small-, mid- and large-cap stocks, emphasizing biopharma stocks. That means stock selection is a big deal for the so-called smart data fund, and that’s tough to accomplish when the entire biotech sector is underperforming in 2024. XBI offers the highest of highs (the fund was up 48.3% in 2020) and significant lows (the very next year, the fund lost 20.5%). In 2023, XBI managed a 7.5% gain (NAV), compared with 3.2% for its category.
iShares U.S. Medical Devices ETF (IHI)
The medical device market, also known as medical technology or “medtech,” is expanding significantly in 2024. Global market size was $193 billion in 2023, and it’s expected to grow at a compound annual rate of 6.1% to $291 billion by 2030, according to Fortune Business Insights.
Medtech companies are the stocks in trade for the iShares U.S. Medical Devices ETF, which tracks the Dow Jones US Select Medical Equipment Index. Consequently, IHI is big on getting in early on companies that develop innovative tech tools for health care companies.
The $5.2 billion fund balances that tilt toward smaller, growth-minded medical device companies with a healthy dose of larger, more established legacy health care device providers like Abbott Laboratories (ABT), which makes up 16.6% of the fund’s holdings, and Boston Scientific Corp. (BSX), which represents 5.4% of holdings.
At $5.2 billion in assets, this BlackRock Inc. (BLK)-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 diabetes and weight-loss drugs like Ozempic and Wegovy, which have been popular with the public. If weight-loss drugs prove reliable and durable in combating obesity, then the need for heart disease procedures, sleep apnea protocols and even high blood pressure medications may be significantly reduced.
The main issue holding weight-loss drugs back is their exorbitant price tags, with Ozempic clocking in at a list price of about $970 per month and Wegovy at up to $1,350 per month without insurance. If prices fall or insurers and employers start covering more of the drugs’ costs, 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 06/24/24: This story was previously published at an earlier date and has been updated with new information.
