Healthcare ETFs are exchange-traded funds that invest in a pool of healthcare sector stocks, including medical services, biotech, pharmaceuticals, medical equipment, and medical devices companies. These ETFs give investors an opportunity to diversify their investments within a given segment (in this case healthcare) without losing the benefits associated with stock trading. Put simply, you can buy and sell ETFs in the same way that you can trade individual stocks.
This is our guide to the best healthcare ETFs to buy in 2021.
Where Can I Trade Healthcare ETFs?
Healthcare ETFs are offered as a part of a larger portfolio of trading instruments on brokerage platforms. However, different brokers offer different terms to clients, so we have compiled a list of top-rated brokers that offer the best trading services for healthcare ETFs based on fees, regulation, and features.
What is a Healthcare ETF?
A healthcare ETF is a basket of healthcare stocks pooled together so that investors can buy and sell them as a single unit. Examples of healthcare ETFs composed of industry-specific stocks are the iShares Biotechnology ETF (which invests solely in biotech stocks) and the iShares Medical Devices ETF (composed of US medical devices stocks). The ARK Genomic Revolution ETF, on the other hand, focuses on stocks of companies that invest in health care innovations.
Since the healthcare industry is focused on products and services that are deemed necessary, healthcare ETFs are non-cyclical, which means they should be less affected (than consumer discretionary industries) in times of financial crisis. This makes healthcare ETFs are a good option for investors looking for low-risk assets. The flip side is that low risk means modest rewards unless you invest in a healthcare ETF — like the ARK Genomic Revolution ETF — that focuses on medical innovations.
Invest in Healthcare ETFs in 3 Steps
Open an Account
Check out our list of top-rated online brokers that offer ETF trading and choose the one that suits your profile in terms of location, regulation, deposit requirements, trading limits, and fees. Open an account in minutes with most online brokers.
Choose Healthcare ETF
Different brokers offer different features for filtering their lists of tradable ETFs, for example by industry, expense ratio, and assets under management. You may be able to click each one to see more information.
Place Your Trade
You can buy healthcare ETFs just the way you buy stocks. You can buy “at the market” which means that the order will be executed instantaneously at the prevailing market price, or you can place a “limit order” which means you won’t pay more than your maximum price.
Best Healthcare ETFs to Buy Now
Here, we have put together a list of the top 10 healthcare ETFs to buy in 2021 based on average returns, the expense ratio, and dividends. We then provide a bit more detail for each one.
- Fidelity MSCI Healthcare Index ETF (FHLC)
- Vanguard Healthcare ETF (VHT)
- John Hancock Multi-Factor Healthcare ETF (JHMH)
- iShares Evolved US Innovative Healthcare ETF (IEIH)
- iShares Global Healthcare ETF (IXJ)
- iShares US Pharmaceuticals ETF (IHE)
- iShares US Healthcare ETF (IYH)
- Global X Cannabis ETF (POTX)
- ARK Genomic Revolution ETF (ARKG)
- VanEck Vectors Pharmaceuticals ETF (PPH)
1. Fidelity MSCI Healthcare Index ETF (FHLC)
FHLC is one of the cheapest healthcare ETFs to invest in. It is very similar to the Vanguard Healthcare ETF but is available at a more attractive expense ratio of 0.08%. FHLC was issued in 2013 by Fidelity, it invests in more than 400 companies of all sizes including small-cap stocks, and its dividend yield (at the time of writing) is 1.28%. It is up 29.2% in the 12 months to May 2021.
2. Vanguard Healthcare ETF (VHT)
VHT was issued by Vanguard in 2004 to track the benchmark index of the largest US healthcare stocks. It is one of the most popular healthcare ETFs in the market and is available at an attractive expense ratio of just 0.10%. At the time of writing, VHT pays dividends at a yield of 1.22%. It is up 29.5% in the 12 months to May 2021.
3. John Hancock Multi-Factor Healthcare ETF (JHMH)
JHMH has over $52 million assets under management (AUM) at the time of writing. This multi-factor index tracks stocks based on various characteristics, including volatility, momentum, and value. All factors are weighted such that high alpha healthcare stocks account for more while low volatility stocks account for lower percentages. JHMH has an expense ratio of 0.40% (at the time of writing) and it trades at a dividend yield of 2.36%. It is up 30.4% in the 12 months to May 2021.
4. iShares Evolved US Innovative Healthcare ETF (IEIH)
This ETF was launched in 2018 by iShares to focus on US companies with innovative healthcare exposure. At the time of writing, IEIH has one of the best dividend yields in the industry at 2.82%. It is available at an expense ratio of just 0.18% and it is up 18.1% in the 12 months to May 2021.
5. iShares Global Healthcare ETF (IXJ)
This iShares ETF offers investors access to the global healthcare industry. It is one of the most diversified ETFs in the market, with low levels of volatility, which makes it attractive to investors seeking stability in their investments. The IXJ has a dividend yield of 1.21% and an expense ratio of 0.46%. It is up 22.3% in the 12 months to May 2021.
Expert Tip on Investing in Healthcare ETFs“ While some healthcare ETFs are relatively similar in terms of assets that they track, the expense ratios can differ. For instance, the Vanguard Healthcare ETF is very similar to Fidelity MSCI Healthcare Index ETF, yet the FHLC has a lower expense ratio that will have a lesser effect on your investment returns. ”- Mauricio Carillo
Why Trade Healthcare ETFs?
Healthcare ETFs provide investors with an opportunity to trade a diversified portfolio of healthcare stocks multiple times a day without having to buy underlying stocks individually. Unlike mutual funds that are not exchange-traded and simply have a daily closing price, the intraday price you pay for ETF units is more transparent.
Frequently Asked Questions
A healthcare ETF provides traders with a well-diversified pool of healthcare stocks, which limits your risk exposure compared with trading individual healthcare stocks that have different risk profiles.
ETFs are often structured to track stock indices whereas most mutual funds are formed with an investment strategy in mind. Mutual funds are valued (and can be traded) once every day, but ETFs can be bought and sold throughout the trading day.
ETFs are becoming popular investment vehicles even among the young generation of investors. This shift is driven by the rising need for portfolio diversification through low-risk investment strategies.
Yes, healthcare ETFs pay dividends to investors. The dividends are calculated based on the weighted average dividend per share for the entire assets under management. Some ETFs focus specifically on dividend-paying stocks.
ETFs are like stocks. There are no set limits on the amount of money you need to start investing unless your broker imposes some limits. As long as you have enough money to buy a few shares of a given ETF, you should be able to trade, and you’ll get greater diversification for less money than by buying the constituent stocks individually.
ETFs are perfect for beginner investors. They carry a low investment risk because they are well diversified across a basket of stocks, which is important when investing in potentially high-risk biotech stocks.