The health care industry is facing headwinds, but analysts continue to forecast growth in 2026.
In a Jan. 12 report, consulting firm McKinsey found that the U.S. health care system is under increased financial pressure. While some segments are still finding ways to grow, a smaller share of overall health spending is turning into operating profits, which fell to 8.9% in 2024 from 11.2% in 2019.
According to McKinsey, “Payers and providers have borne the brunt of the decline to date and will continue to feel financial pressure in the immediate future. For example, payers are facing enrollment declines in Medicaid and Affordable Care Act plans because of regulatory changes.”
[Sign up for stock news with our Invested newsletter.]
At the same time, McKinsey analysts say, “providers could experience an increase in uncompensated care and loss of reimbursement.”
However, over the next three years, analysts expect the overall industry position to strengthen. There is reason for optimism: An aging population and new therapies continue to drive demand.
Investors who want to target their exposure to the health care industry with mutual funds or ETFs have several choices. Here are some of the largest:
| Fund/ETF | Expense Ratio |
| Health Care Select Sector SPDR Fund (ticker: XLV) | 0.08% |
| Vanguard Health Care ETF (VHT) | 0.09% |
| T. Rowe Price Health Sciences Fund (PRHSX) | 0.80% |
| iShares Biotechnology ETF (IBB) | 0.44% |
| Fidelity Select Health Care Portfolio (FSPHX) | 0.63% |
| iShares Global Healthcare ETF (IXJ) | 0.40% |
Health Care Select Sector SPDR Fund (XLV)
The S&P 500 health care sector has been a middle-of-the-pack performer over the past year, lagging traditional growth sectors such as technology and communications services, but ahead of defensives such as utilities and consumer staples.
This core sector ETF gives investors access to a basket of large and well-established health care companies. It’s appealing to a wide swath of investors who value an efficient portfolio that closely tracks an underlying index with a low expense ratio. It also has a 30-day SEC yield of 1.6% as of late January.
XLV holds 60 stocks and has an expense ratio of 0.08%, a low fee that you’d expect from an index fund. Top holdings are Eli Lilly & Co. (LLY), Johnson & Johnson (JNJ) and AbbVie Inc. (ABBV).
Vanguard Health Care ETF (VHT)
Vanguard’s health care index fund follows the MSCI U.S. Investable Market Health Care 25/50 index of 395 stocks. Because it offers greater market cap exposure, its average market capitalization is about $113 billion versus XLV’s average of $187 billion. That means the fund carries more risk; its beta is 0.68, while XLV has a beta of 0.59. That’s a reflection of fund composition, and it’s not always a bad thing, as VHT can outperform when smaller stocks are in favor.
“VHT offers broader exposure across the health care ecosystem, including large, mid and small-cap companies,” says Steven Crane, financial planner at Legacy Wealth Builders in Fairborn, Ohio.
VHT pays a 30-day SEC yield of 1.4%, with an expense ratio of 0.09%.
T. Rowe Price Health Sciences Fund (PRHSX)
With an actively managed mutual fund such as PRHSX, a manager screens for stocks and selects the ones they believe will outperform.
These active funds may mean investors pay a higher fee, in this case 0.8%. These funds generally have higher turnover than index funds. However, they may appeal to investors who believe a skilled manager can add value, says Trent Von Ahsen, a certified financial planner (CFP) and managing partner at Cedar Point Capital Partners in Cedar Rapids, Iowa.
“The trade-off, as always, is greater dispersion in outcomes and higher reliance on manager selection,” he adds.
According to fund sponsor T. Rowe Price, managers invest in four main categories: Pharmaceuticals, health care companies, product and device providers, and biotechnology firms. Top holdings are Eli Lilly, Intuitive Surgical Inc. (ISRG) and Thermo Fisher Scientific Inc. (TMO).
[Best Crypto ETFs With Dividends]
iShares Biotechnology ETF (IBB)
This 256-stock ETF tracks the NYSE Biotechnology Index. Its expense ratio is 0.44%, higher than some other index ETFs.
That bigger fee is due to the inherent complexity of maintaining an index following a notoriously volatile industry. Stocks can whipsaw dramatically depending on factors such as clinical trial results and regulatory approvals. That can result in more trading, rebalancing and portfolio turnover, all of which raise costs. Investors must understand they are taking on that volatility.
“The upside can be significant when innovation and drug approvals are strong, but drawdowns can be severe,” Crane says. “This is not a core holding for most people, but it can make sense as a small satellite position for aggressive investors.”
Fidelity Select Health Care Portfolio (FSPHX)
This actively managed mutual fund has underperformed its primary and secondary benchmarks, the S&P 500 and the MSCI US IMI Health Care 25/50 Index, respectively.
The fund invests in companies throughout the health care and pharmaceutical value chain. One drag on recent performance: heavy weightings in medical gear makers such as Danaher Corp. (DHR) and Boston Scientific Corp. (BSX), which have underperformed other health care subindustries.
“While underperforming its benchmarks, FSPHX has also slightly underperformed passively managed health care ETFs such as XLV, while charging an expense ratio of 0.63%,” says Jay Fedak, a CFP at Fedak Financial Planning in New Milford, Connecticut.
He points out that the fund’s fee is 55 basis points higher than XLV’s. FSPHX also has a higher turnover rate and lower tax efficiency than a basic index ETF like XLV.
“The most important data point is the fund’s end-of-year realized capital gains triggering a tax bill if held in a taxable account regardless of how long you have owned the fund,” Fedak says.
Stock selection, rather than tracking an index, can mean a fund outperforms in a given time frame if managers are able to identify big winners. That’s the case with FSPHX, which has outpaced the XLV on a three-year basis.
However, investors should also take into account the trade-offs of owning an active fund that’s less tax-efficient and carries higher fees.
iShares Global Healthcare ETF (IXJ)
This ETF follows the S&P 1200 Healthcare Sector Index. It’s composed of pharmaceutical, medical device and biotech stocks from companies headquartered worldwide.
Its expense ratio is 0.4%. That’s higher than U.S. index funds. Global ETFs can be more expensive to trade because foreign markets are harder to access, currency changes add extra costs and some international markets are smaller and less liquid. The fund does pay a 1.4% 30-day SEC yield.
This ETF’s global exposure can be helpful for diversification, says Brady Lochte, financial advisor at Axon Capital Management in Georgetown, Texas. “It tends to be less concentrated in U.S. giants and can complement domestic health care exposure in a diversified portfolio.”
Top countries represented are the U.S., Switzerland and the U.K. Top holdings are Eli Lilly, Johnson & Johnson and AbbVie Inc. The largest non-U.S. holdings are Roche Holding AG (ROG.SW, OTC: RHHBY), Novartis AG (NVS) and AstraZeneca PLC (AZN).
More from U.S. News
9 of the Best Bond ETFs to Buy for 2026
7 Best REIT ETFs to Buy for 2026
6 Best Health Care Funds and ETFs to Buy Now originally appeared on usnews.com
Update 01/28/26: This story was published at an earlier date and has been updated with new information.
