If you are interested in investing in the health care industry, one way to get started is by purchasing a health care exchange-traded fund (ETF). This allows you to gain exposure to a wide range of health care companies without the need to analyze individual stocks. Investing in a health care ETF provides diversification, reducing the risks associated with investing in individual companies.
The health care sector offers significant growth opportunities. With advancements in medicine and increasing life expectancy, there is a constant need for treatments for diseases such as cancer, heart disease, Alzheimer’s, and more. Additionally, U.S. health care spending has been on the rise, indicating a resilient sector of the economy.
Here are some of the best health care ETFs categorized by sub-sectors:
Types of health care ETFs
The health care sector can be divided into various sub-sectors, offering different investment opportunities. Some of the common sub-sectors include:
- Broad health care
- Includes a variety of health care sub-sectors, providing exposure to the overall health care industry.
- Biotechnology
- Focuses on companies specializing in biotechnology and pharmaceuticals, offering potential for high returns.
- Medical devices
- Involves companies that manufacture medical devices and equipment.
- Health-care providers
- Includes companies that deliver health care services to individuals.
- Pharmaceuticals
- Comprises companies focused on traditional drug development.
Investors have the flexibility to choose the sub-sector that aligns with their investment goals. For a comprehensive exposure to the health care industry, a broad health care ETF is recommended.
Best health care ETFs
1. Best broad health care ETF
Health Care Select Sector SPDR Fund (XLV)
The Health Care Select Sector SPDR Fund tracks the Health Care Select Sector index, which includes companies from pharmaceuticals, equipment and supplies, health-care providers, and biotechnology sectors.
- 5-year returns (annualized): 12.4 percent
- Expense ratio: 0.09 percent
- Dividend yield: 1.5 percent
2. Best biotechnology ETF
iShares Nasdaq Biotechnology ETF (IBB)
The iShares Nasdaq Biotechnology ETF tracks an index of biotechnology and pharmaceutical stocks listed on the NASDAQ exchange, with top holdings including Amgen, Gilead Sciences, and Regeneron Pharmaceuticals.
- 5-year returns (annualized): 7.2 percent
- Expense ratio: 0.45 percent
- Dividend yield: 0.27 percent
3. Best medical devices ETF
iShares U.S. Medical Devices ETF (IHI)
The iShares U.S. Medical Devices ETF tracks U.S.-listed medical device companies, including Abbott Laboratories, Medtronic, and Boston Scientific.
- 5-year returns (annualized): 6.4 percent
- Expense ratio: 0.40 percent
- Dividend yield: 0.54 percent
4. Best health-care providers ETF
iShares U.S. Healthcare Providers ETF (IHF)
The iShares U.S. Healthcare Providers ETF tracks U.S.-listed health care providers such as UnitedHealth, CVS Health, and Elevance Health.
- 5-year returns (annualized): 10.5 percent
- Expense ratio: 0.40 percent
- Dividend yield: 0.75 percent
5. Best pharmaceuticals ETF
iShares U.S. Pharmaceuticals ETF (IHE)
The iShares U.S. Pharmaceuticals ETF tracks U.S.-listed pharmaceutical companies, including Eli Lilly, Johnson & Johnson, and Pfizer.
- 5-year returns (annualized): 9 percent
- Expense ratio: 0.39 percent
- Dividend yield: 1.47 percent
What to look for in an ETF
When choosing an ETF, consider the following factors to make an informed decision:
- The sub-sector – Different sub-sectors may react differently to industry conditions, so understand the companies you are investing in.
- The investment track record – Look at the historical performance of the ETF to gauge its potential returns.
- The expense ratio – Pay attention to the cost of owning the fund, as lower expense ratios are generally more favorable.
It’s important to note that larger ETFs often have lower expense ratios due to their size. Choosing an ETF with a low expense ratio is essential for maximizing returns.
Consulting with top brokers can help you identify high-performing ETFs for your investment portfolio.
Bottom line
Investing in a health care ETF provides a convenient way to gain exposure to the industry. Whether you prefer a specific sub-sector or a broad approach, there are ETF options available to suit your investment preferences. Consider your investment goals and risk tolerance when selecting an ETF for your portfolio.
Editorial Disclaimer: It is recommended that investors conduct their own research before making investment decisions. Past performance is not indicative of future results.