5 Best Healthcare ETFs to Buy in 2024

Healthcare is a popular choice among investors due to the integral role that the industry plays in global socioeconomics. The best healthcare companies can be a secure way to protect and grow capital over the long term, often being characterized by stable investment returns and consistent dividend payments.

One of the best methods for gaining diversified exposure to the healthcare industry is via exchange-traded funds (ETFs). Healthcare ETFs distribute capital across a basket of top healthcare companies, and there are some great options to choose from.

This article will rank some of the best healthcare ETFs to buy in 2024, considering several key factors such as geographical focus and historical performance.

Here’s our list of the 5 best healthcare ETFs in 2024:

1. Health Care Select Sector SPDR Fund (XLV)
2. iShares U.S. Healthcare ETF (IYH)
3. Vanguard Health Care ETF (VHT)
4. iShares Global Healthcare ETF (IXJ)
5. Invesco DWA Healthcare Momentum ETF (PTH)

What are the most important considerations when deciding which healthcare ETF to buy?

Investing in the healthcare sector has historically provided consistent and stable returns. The sector includes well-established brands that have become extremely influential across cosmetics, pharmaceuticals, healthcare equipment, biotechnology, and advanced medical research of all kinds.

On the demand side, developments such as the COVID-19 pandemic, the mental health awareness movement, and an aging population in Western markets have contributed to an increased rate of growth for the healthcare industry in recent years.

For investors seeking broad exposure to the healthcare industry, ETFs can provide a simple and effective investment vehicle. Here are some of the most important considerations to make when choosing the right healthcare ETF for you:

1. Geographical focus — The U.S. healthcare sector is particularly well-established, but some ETFs can provide global exposure as well
2. Dividend yield — More established healthcare companies are known for providing consistent dividend payments, which can provide shareholders with near-guaranteed cash flow
3. Past performance — Each ETF tracks a unique healthcare index where the historical performance may provide some insight into expected investment returns

Comparing and contrasting the 5 best healthcare ETFs to buy in 2024

Now, let’s take a closer look at each healthcare ETF that we’ve selected. We made sure to compare the ETFs based on their investing styles and portfolios, as well as expense ratios and other key factors.

1. Health Care Select Sector SPDR Fund (XLV)

Health Care Select Sector SPDR Fund (XLV) aims to replicate the performance of the Health Care Select Sector Index, which includes a diverse range of top healthcare companies spanning various sub-sectors. Among the companies that can be found in the portfolio are those that specialize in pharmaceuticals, biotechnology, and healthcare equipment.

XLV tracks a market-cap-weighted index, meaning that it distributes capital in direct proportion to the total valuation of each portfolio company. This helps to give investors exposure to the total healthcare industry, as the sector’s most influential companies are given more weight.

The fund primarily includes healthcare companies from the S&P500, which provides a strict focus on U.S.-based healthcare. The gross expense ratio of XLV is 0.09%, which is slightly higher than other ETFs on this list. On balance, XLV has provided good investment returns in recent years as the wider healthcare sector has grown.

Here is the historical performance of XLV:

2. iShares U.S. Healthcare ETF (IYH)

iShares U.S. Healthcare ETF (IYH) seeks to track the investment results of the Dow Jones U.S. Health Care Index, which includes companies in various healthcare industries. IYH also tracks a market-cap-weighted index, and it provides diversified exposure to the healthcare industry that can help to spread risk across different sub-sectors.

As the name suggests, IYH focuses on U.S.-based healthcare companies. The portfolio includes top healthcare brands such as Johnson & Johnson (JNJ) and Pfizer (PFE), and the fund provides good dividend payments to its shareholders every quarter. At the time of writing, IYH offers $3.55 per share annually, providing a dividend yield of 1.2%.

Despite a positive performance in terms of the ETF’s price appreciation over the past 5 years, IYH is on the more expensive side when it comes to management costs. The expense ratio is 0.40%, significantly higher than some competitors.

Here is the historical performance of IYH:

3. Vanguard Health Care ETF (VHT)

Vanguard Health Care ETF (VHT) seeks to track the performance of the MSCI US Investable Market Health Care 25/50 Index. The index covers the entire market capitalization of the U.S. healthcare sector, including companies from its various sub-sectors. By holding a broader selection of companies in the portfolio, VHT can provide a higher level of diversification than ETFs that focus strictly on large-cap stocks.

VHT is characterized by a competitive dividend yield of 1.3% and a strong 5Y performance of +50.63%. Vanguard, the institution that manages the fund, is known for providing reasonably priced expense ratios. VHT combines its strong performance with an expense ratio of just 0.05%.

On balance, VHT can provide investors with broad exposure to the healthcare industry including the top companies from the United States. While historical performance may not necessarily be an accurate indication of future returns, VHT is also the second-best-performing ETF on this list since 2019.

Here is the historical performance of VHT:

4. iShares Global Healthcare ETF (IXJ)

iShares Global Healthcare ETF (IXJ) is designed to provide investors with exposure to the global healthcare sector. This makes IXJ stand apart from alternative funds, as most of the top-performing healthcare ETFs provide a strict focus on the U.S. healthcare industry.

The IXJ portfolio provides exposure to top healthcare companies from developed and emerging markets, including Australia, China, the United Kingdom, Brazil, Japan, and Denmark, among many others. IXJ also includes top U.S. health stocks such as Merck & Co. (MRK) and Abbvie Inc. (ABBV).

IXJ being the best-performing fund on this list reflects a growing demand for healthcare services around the world in recent years, impacted by various demand-side developments such as the COVID-19 pandemic. A key drawback of IXJ is that it has a higher expense ratio when compared with alternative healthcare ETFs, as Blackrock provides its management services at a rate of 0.42%.

Here is the historical performance of IXJ:

5. Invesco DWA Healthcare Momentum ETF (PTH)

Invesco DWA Healthcare Momentum ETF (PTH) aims to track the performance of the Dorsey Wright Healthcare Technical Leaders Index. The main objective of the fund is to provide exposure to companies that exhibit strong growth characteristics, using the relative strength of stock price momentum as the primary screening factor.

Since PTH is primarily focused on providing price-based returns, it can be seen as a higher-risk option for healthcare ETFs when compared with those that offer exposure to large-cap stocks only. However, professional-grade use of technical indicators and a savvy distribution of capital has led to strong returns in recent years.

The gross expense ratio of 0.71% is by far the highest on this list, which may reflect the higher risk factor associated with a momentum-based investment strategy. On balance, PTH is a lesser-traded healthcare ETF in terms of its average daily volume, but it remains one of the strongest in terms of its recent performance.

Here is the historical performance of PTH:

The bottom line

With demand-side factors influencing the rate of growth in the global healthcare industry, funds that can provide diversified exposure to the top healthcare companies could continue to generate consistent investment returns. Coupled with highly competitive dividend payouts, healthcare remains one of the most popular areas of investment for good reason.

To recap, here are the top three best healthcare ETFs to buy in 2024:

1. Health Care Select Sector SPDR Fund (XLV)
2. iShares U.S. Healthcare ETF (IYH)
3. Vanguard Health Care ETF (VHT)

Investors seeking to diversify their investment holdings by investing in ETFs may want to explore the best Vanguard ETFs here.