Best healthcare ETFs to buy in 2023
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Healthcare is a relatively non-cyclical industry since the majority of healthcare services and products are essential. As such, healthcare ETFs are a great value-add to a defensive portfolio. On this page our experts pick out the best healthcare ETFs to invest in right now.
What are the top healthcare ETFs to buy?
Our analysts have selected five of the top ETFs in healthcare for this year as listed in the table below. To discover more about each in turn, continue scrolling through the page.
| # | ETF symbol | ETF name | Where to Trade |
|---|---|---|---|
| 1 | XLV | Health Care Select Sector SPDR Fund | |
| 2 | VHT | Vanguard Healthcare ETF | |
| 3 | XWDH | Xtrackers MSCI World Health Care | |
| 4 | PSCH | Invesco S&P SmallCap Health Care ETF | |
| 5 | IHI | iShares U.S. Medical Devices ETF |
1. Health Care Select Sector SPDR Fund (NYSEARCA: XLV)
XLV is a safe and cost-effective way for the new investor to invest in healthcare companies. The fund aligns with the price and yield performance of the Health Care Select Sector Index. Investors to the fund are exposed to a range of companies in the healthcare industry that are representative of the S&P 500 Index.
XLV comprises companies from a diverse range of industries, the current allocation has a majority focus on pharmaceuticals and healthcare services & equipment – nearly identical to that of the Index. As it is not possible to directly invest into an Index, XLV is designed to enable an investor to invest in a more strategic manner by taking tactical positions in a fund that aims to best replicate the Index.
2. Vanguard Healthcare ETF (NYSEARCA: VHT)
VHT is a low-cost and tax-efficient healthcare ETF. Aimed at providing a wide-ranging exposure to the healthcare industry, VHT is a passively managed fund. Passively managed funds are preferred by both institutional and retail investors alike as they are better suited to a low-risk and long-term investment style.
VHT aims to replicate the MSCI US Investable Market Health Care 25/50 Index and currently holds 455 US healthcare stocks. This is done with the fund’s aim to reduce risk to the investor by diversifying its holdings in a large portfolio. Notable individual stock holdings include Johnson & Johnson, Unitedhealth Group, and Pfizer.
The fund’s performance has consistently grown since its launch in 2004; it is up 25% in the last year alone. Furthermore, the fund has a favourable expense ratio – this determines a fund’s operating expenses and is significant to investors because the higher the operating expenses, the lower the returns on investment. With their current annual operating expenses at 0.10%, VHT is one of the most affordable EFTs in the healthcare space.
3. Xtrackers MSCI World Health Care (MILAN: XWDH)
XWDH is a low-cost healthcare ETF domiciled in Ireland, amassing a large pool of assets under management. It currently comprises 154 global healthcare stocks – the widely varied range of stocks means that there is less risk from the failure of any individual stock.
The fund aims to track the MSCI Daily Total Return World Net Healthcare Index. Uniquely, XWDH enables an investor to gain physical exposure to the securities that comprise the Index as the fund owns them directly. Therefore, by investing in the fund and owning its shares, you earn the returns of the securities.
At 0.25% operating expenses, the fund is a reliable bet in the healthcare industry. As an older and established ETF, the fund’s consistent growth since its launch supports the safeguard of its low-risk offering.
4. Invesco S&P SmallCap Health Care ETF (NASDAQGM: PSCH)
PSCH is a healthcare ETF that aims to track the S&P SmallCap 600 Capped Health Care Index. The fund currently invests 90% of its total assets into the securities of 76 small-cap US healthcare companies that constitute the index. As such, it is most suitable for speculative investors that can bear high risk adjusted with diversification.
The fund is highly rated on the MSCI ESG Fund Rating, which means that it is great for socially conscious investors interested in ESG investing. Invesco has strong management of financially-relevant ESG issues and is therefore more resilient to disruptions.
PSCH’s current annual operating expenses are 0.29%, making it a low-cost bid in the healthcare ETF space. The fund is currently up 29% in the last year, a good recent performance that might be ideal for the new investor.
5. iShares U.S. Medical Devices ETF (NYSEARCA: IHI)
IHI is a non-diversified healthcare ETF that aims to track the Dow Jones U.S. Select Medical Equipment Index. It is unique because it focuses on an often forgotten aspect of the healthcare space, the medical device makers. Its 70 holdings are companies that tend to be much smaller than their counterparts in big pharma, have less issues with patent processes, and have more sustainable revenue streams.
As IHI is a niche fund that specifically focuses on companies that manufacture and distribute medical devices, it is prone to specific-market risk. The good news is, however, that the medical devices market is low risk.
Optimistically, the fund currently has 0.41% annual operating expenses, making it a low-cost option in the sector. The fund is also up 26% over the last year, which is reassuring for its investors.
Where to buy the best healthcare ETFs
To invest in an ETF, you must register with an online broker. ETFs are like individual stocks, so you can buy or sell them whenever you want. The table below is our pick of the best brokers that offer healthcare ETFs.
What is a healthcare ETF?
It’s an exchange traded fund that holds shares in companies that operate in the healthcare industry. Companies in this sector facilitate the provision of healthcare to patients, develop medical equipment or drugs, offer medical insurance, or provide medical services.
Healthcare is a resilient and relatively non-cyclical sector due to the essential nature of the products and services on offer, so these ETFs are often able to provide their investors with relatively stable and long-term returns.
Are healthcare ETFs a good investment?
They often are as they provide stable and long-term returns on investment. The healthcare industry is essential and provides services and products that have relatively inelastic demand. A defensive portfolio stands to gain a strong vantage point with the addition of a decent healthcare ETF.
Price volatility is not a concern for most large, diversified ETFs in the industry. If an ETF has low specific-stock risk and operating expenses, they are a relatively solid bet for a new investor. The evolving technology and innovation in the sector is also attractive for the potential of future returns in investment.
It must be noted that the trade off for such low-risk investments is that generating returns takes time. Healthcare ETFs underperformed the market in the past year and in most cases, investors in the sector must have patience and the view of long-term investment. It is key to stay up to date with the latest news and developments in order to best place an investment, you can do so by following the links below or by reading: the best performing ETFs.
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