It’s a simple method to invest in the healthcare market without having to undertake all the effort of evaluating specific firms if you’re interested in doing so. A healthcare ETF allows you to invest in a wide range of companies in the sector, as well as the ability to break it down into smaller sub-industries.
However, you can choose the stock portfolio that best suits your needs. Additionally, you may reduce your exposure to market volatility by investing in an ETF rather than picking equities one at a time.
As a result, the healthcare industry has a lot of room to expand. Medicine faces a slew of ailments it must combat as individuals live longer than they ever have before, including cancer, heart disease, Alzheimer’s disease, stroke, and many more.
Emerging illnesses like COVID-19 and disorders that have yet to be discovered are included. There’s also been a long-term increase in healthcare expenditure in the United States.
As a result, a healthcare ETF may be a viable option for investors looking to diversify their portfolios. However, the most significant investments for beginners also include a wide range of possibilities for investors of all levels.
Which healthcare ETFs are the most common?
In the healthcare industry, several subsectors may be divided based on the kind of firms that operate inside it. You may invest in a healthcare exchange-traded fund (ETF) to get exposure to these areas.
- This category encompasses the several sub-sectors of healthcare described below, allowing you to get a broad understanding of the field.
- These firms are involved in biotechnology and other pharmaceuticals. I think it’s an attractive area with the potential for big profits.
- Medical devices, such as implants or other equipment, are the primary emphasis in this sub-sector.
- Companies that offer direct patient care are included in this industry’s healthcare providers subsector.
- It covers firms that create conventional pharmaceuticals rather than biotech companies.
As a result, you have a wide range of alternatives. On the other hand, the broad healthcare ETF covers a wide range of healthcare-related stocks.
Looking for an ETF’s characteristics
It’s a good idea to look at a few elements of each ETF before deciding which one to invest in. It is essential to keep an eye out for the following:
- Depending on the industry, each subsector may react differently. Because they are funded in various ways, pharmaceutical corporations and healthcare providers, for example, respond quite differently to changes in the business. As a result, you must first decide on the kind of business you wish to own.
- In addition, you’ll want to discover the ETF’s investing track record. The industry, or has it fared better than expected in times of strength? You may get a sense of what to anticipate from the ETF based on its previous performance.
- You should also keep an eye on the fund’s expense ratio, which informs you how much it costs to own the fund each year as a percentage of your investment in it.
According to GADCapital 60 minutes loan expert, it’s worth mentioning that bigger ETFs often have lower expense ratios since they can spread the expenses of administering the fund across a more significant number of assets. As a result, low-cost ratios are an essential indicator of an ETF’s quality. The cheapest funds may also be the biggest.
Listed below are some of the top healthcare-related exchange-traded funds (ETFs).
1. One of the best broad-based ETFs in the healthcare sector
Selected-Sector SPDR Fund for Health Care (XLV)
S&P 500 healthcare businesses are included in this exchange-traded fund mimics the Health Care Select Sector index. There are pharmaceuticals, biotechnology, and other healthcare-related companies on this index.
- Annualized returns over the last five years: 14.0 percent (as of Sept. 30, 2021)
- Its cost-to-income ratio is 0.12%.
- There is a dividend yield of 1.4%
2. The iShares Nasdaq Biotechnology ETF is the best biotech ETF (IBB)
The principal holdings of this fund are Amgen, Gilead Sciences, and Moderna, and it follows an index of NASDAQ-listed biotech and pharmaceutical firms.
- Annualized returns over the last five years: 11.1 percent (as of Sept. 30, 2021)
- There is a 0.45% cost-to-income ratio
- The dividend yield is 0.02%
3. ETF shares US Medical Devices ETF is the best in this category (IHI)
Abbott Laboratories and Thermo Fisher Scientific are among the firms that make up this ETF’s index.
- Annualized returns over the last five years: 21.4 percent (as of Sept. 30, 2021)
- Cost-to-income proportion: 41%
- Yield: 0.2 per cent
4. The iShares U.S. Healthcare Providers ETF is the best healthcare provider ETF available today. (IHF)
UnitedHealth, CVS Health, and Cigna are the healthcare companies that this fund monitors.
- Annualized returns over the last five years: 17.0 percent (as of Sept. 30, 2021)
- The expense to revenue ratio: 42%
- a 0.5 percent return on investment
5. One of the best pharma ETFs is iShares US Pharma ETF (IXPH) (IHE)
Johnson & Johnson, Pfizer, and Merck are included in this ETF’s index of US-listed pharmaceutical firms.
- Annualized return over five years: 5.6 percent (as of Sept. 30, 2021)
- The expense to revenue ratio: 42%
- A 1.3 percent dividend yield.
The Bottom Line
It depends on the sub-sector you want your money tied to if you want exposure to the healthcare industry. If you don’t know which company to invest in, you may invest in an ETF covering the whole sector. The S&P 500 index ETF is an excellent example of a widely diversified index fund that doesn’t need much knowledge on the part of the investor to be successful.