With three months left in 2024, U.S. health care stocks are out of sick bay and up 12.3% on a year-to-date basis, as measured by the S&P 500 Health Care Index. This gain follows two years of investor angst over the sector’s sluggish gain of 2.06% in 2023 and loss of 1.95% in 2022.
Compare that to the S&P 500, which is in strapping health in 2024, up 20.5% year to date and up 34.4% for the past year.
While health care stocks continue to move in the right direction, consistently trailing the main S&P equities index is not what sector investors had in mind.
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Yet the industry has undergone massive technological changes that should benefit fund holders for years to come. Consider the growth in key areas like telehealth, surgery, data analytics and (especially) biotechnology. Then add in the built-in benefit from tens of millions of baby boomers (11,000 of whom turn age 65 every day) and Generation X advancing in age, all of them increasingly dependent on the products and services offered by the health care sector.
So maybe health care, a $4.8 trillion industry, is a portfolio allocation whose time has come. After all, the industry is well known for its low valuations, high cash flows and innovation, and Wall Street loves stocks that can meet those juicy expectations. The sector is also resilient, as consumers can hardly opt out of health care spending in times of need.
With that background in mind, let’s take a closer look at six health care exchange-traded funds, or ETFs, that can provide easy access to the best stocks the sector can offer at a time when health care stocks should — and likely will — continue to grow over the next decade:
| Health Care ETF | Expense ratio | 30-Day SEC Yield |
| iShares Global Healthcare ETF (ticker: IXJ) | 0.41% | 1.2% |
| Vanguard Health Care ETF (VHT) | 0.10% | 1.3% |
| Fidelity Select Health Care (FSPHX) | 0.65% | 0.0% |
| 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% | 0.0% |
iShares Global Healthcare ETF (IXJ)
One of the sector’s top performers in 2024, the iShares Global Healthcare ETF is up 13.9% year to date and has gained 19.9% over the past year as of Sept. 26. The fund also offers a healthy 11.4% annualized return over the past five years and a 1.2% trailing-12-month dividend yield.
The fund managers have leaned into some of the biggest biopharma names in the business, with Eli Lilly and Co. (LLY), Merck & Co. Inc. (MRK), AstraZeneca PLC (AZN.L) and Novo Nordisk A/S (NVO) comprising about 21% of the fund.
The fund is wholly committed to the sector, with 100% of its holdings in health care stocks. The fund also offers investors exposure to worldwide health care companies, particularly in the pharmaceutical, biotechnology and medical device sectors. 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.
At a 0.41% net expense ratio, IXJ is a tad expensive compared to its peers. Still, the decent dividend yield and the fund’s overperformance against its category peers in the past five years should be a green light for sector investors.
Vanguard Health Care ETF (VHT)
This massive health care fund is up 13.1% so far in 2024, with $18.5 billion in assets and a low expense ratio of 0.1%. It tracks the S&P 500 Health Care Index, like most sizable health care ETFs. It offers a steady 1.2% 12-month trailing dividend and is 100% invested in health care stocks, which is something many sector ETFs can’t say.
Most stocks in the VHT portfolio have earned “buy” ratings from Wall Street analysts, and the fund has an average price target of $354.75, according to TipRanks, representing a 25.8% upside from the fund’s recent buy-in price of $282 per share.
If you’re looking for a low-cost health care ETF that offers a decent dividend yield and embraces game-changing AI technologies, then VHT may work for your portfolio.
Fidelity Select Health Care (FSPHX)
This fund, which is heavily loaded with biotechnology stocks like Eli Lilly (8.2% of the fund), Regeneron Pharmaceuticals Inc. (REGN) (4.4%) and Merck (3.9%), is cruising along in 2024. The fund is up 13.2% year to date, just ahead of the S&P Health Care Index.
Buying the fund is easily manageable at a market price of $31.45 as of Sept. 26, although the expense ratio is on the high side at 0.65%.
The fund continually ranks in the top 40% of its category. Outside of a late 2021-2022 drought (when health care stocks lagged after COVID-19 started to fade), it has been a steady performer, averaging a 9.8% annual return over the past 10 years.
The fund also has time and experience on its side. FSPHX was launched in 1981, and the same fund manager (Edward Yoon) has managed it since 2008. If you’re looking for a solid, dependable, well-managed health care ETF, run the diagnostics on this reliable sector fund.
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Health Care Select Sector SPDR ETF (XLV)
The Health Care Select Sector SPDR ETF, launched in 1998, holds $41.5 billion in assets, making it one of the largest health care ETFs. Performance-wise, the fund is up 13.5% year to date and 19.9% over the past year. Fund performance is consistent, with managers delivering an annual average of 13.2% over the past five years.
The fund has benefited from large investor inflows to the health care sector, as the industry is more immune to low consumer demand compared to volatile industries like retail or manufacturing.
The fund is top-heavy, with its top 10 holdings making up 57% of all portfolio assets. It allocates 31% of its lineup to pharmaceutical stocks and 21% to health care provider and services stocks. The fund holds health care industry stalwarts like UnitedHealth Group Inc. (UNH), Eli Lilly, Johnson & Johnson (JNJ) and AbbVie Inc. (ABBV), as do some of the other ETFs on this list. Those four stocks together compose about 35% of the entire fund.
Like most larger sector ETFs, XLV offers a cost-friendly expense ratio of 0.09% while delivering an ample 1.4% trailing 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 services, and equipment and supply stocks.
Its fund strategy may be vanilla, but safety-minded investors won’t mind. Its 10-year annualized return by net asset value stands at 10.8%, against 8.6% for the broader health care sector. With a decent dividend and a low cost of entry, XLV should be attractive for the long haul.
Invesco S&P 500 Equal Weight Health Care ETF (RSPH)
This Invesco fund seeks to emulate the S&P 500 Equal Weight Health Care Index with 100% of its holdings in health care stocks, leaning more toward the biotechnology side of the health care sector. Fund holdings are generally spread out, with no single stock taking up more than 2% of the portfolio. Waters Corp. (WAT) is the largest component, at 1.8% of the fund.
At $946 million in assets, the Invesco S&P 500 Equal Weight Health Care ETF is one of the smaller health care funds on the market. RSPH may be underperforming with a gain of 7.8% so far in 2024 against 10.3% for its category, but the fund has an easily affordable 0.4% expense ratio. That’s cheaper than most funds in its category, which average about 1% annually. RSPH has also outperformed its category over the past three, five and 10 years.
The fund managers tend to hold on to their stock picks longer than some competitors (the fund’s turnover rate is 26%), offering skittish investors some needed stability. RSPH also offers a low entry price, at $31.96 as of Sept. 26.
SPDR S&P Biotech ETF (XBI)
This fund tracks the performance of the S&P Biotechnology Select Industry Index, which primarily includes companies in the biotechnology segment of the S&P Total Market Index. XBI favors smaller and midsize biotech companies, which adds a higher element of risk to the fund.
Highly volatile biotech stocks have underperformed in recent years, but hope springs eternal as the sector starts to yield benefits due to recent acquisition activity and expanded drug approvals in 2024.
XBI’s returns are slightly trailing the category average in 2024, up 10.1% year to date against 10.3% for its category, but the fund has a 34.2% return by net asset value over the past year. That trounces the category’s one-year return of 20.5%. The fund is mirroring the benchmark S&P Biotechnology Select Industry Index, which has risen just over 10% 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, with an emphasis on biopharma stocks. That means stock selection is a big deal for the so-called smart beta fund. With the sector rebounding in the second half of 2024, XBI is benefiting from robust returns that stoke memories of 2020, when the fund gained 48.3% during the heart of the COVID-19 crisis.
Nobody’s saying XBI will reach those heights anytime soon, but investors will accept 10% returns after years of heavy losses and paltry gains. Accustomed to volatility, biotech investors are expecting bigger gains in 2024, and chances are they’ll get them.
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6 Best Health Care ETFs to Buy Now originally appeared on usnews.com
Update 09/27/24: This story was previously published at an earlier date and has been updated with new information.
