5 Best Healthcare ETFs To Buy

In this article, we discuss 5 best healthcare ETFs. If you want to read our discussion on the healthcare market, head over to 12 Best Healthcare ETFs To Buy. 

5. VanEck Pharmaceutical ETF (NASDAQ:PPH)

5 Year Performance as of September 4: 31.34%

Launched in December 2011, VanEck Pharmaceutical ETF (NASDAQ:PPH) mirrors the performance of the MVIS US Listed Pharmaceutical 25 Index. This index monitors the overall performance of companies engaged in the pharmaceutical industry. As of September 1, the ETF manages total net assets worth $430.82 million, while maintaining an expense ratio of 0.36%. It is one of the best healthcare ETFs to buy. 

Novo Nordisk A/S (NYSE:NVO) is a prominent holding of VanEck Pharmaceutical ETF (NASDAQ:PPH). Novo Nordisk A/S (NYSE:NVO) is a Danish pharmaceutical company that is engaged in the research, development, and manufacture of treatment therapies for diabetes, obesity, and rare diseases. On August 10, the company announced a Q2 revenue of DKK 54.3 billion, along with a GAAP EPS of DKK 8.63.

According to Insider Monkey’s second quarter database, a total of 43 hedge funds were bullish on Novo Nordisk A/S (NYSE:NVO). In comparison, 46 hedge funds had invested in the company during the preceding quarter. 

Rowan Street Capital made the following comment about Novo Nordisk A/S (NYSE:NVO) in its second quarter 2023 investor letter:

“Our current portfolio is made up of just 10 companies — we are very focused! We described our ‘10-Player All-Star Team’ philosophy in our Q1 2018 Letter (we encourage you to review it). We have been building this portfolio since our founding in 2015. In total, over the past 8 years, we bought stock in 47 different companies (that’s ~6 per year), and obviously, for anyone who is good at arithmetic, we sold 37 of them (~4.6 per year). We are constantly trying to learn from every decision (good or bad) that we make. We went through every position that we’ve sold since 2015 and analyzed how we would have done had we held on to those positions. The top 3 performing positions would have been: Chipotle (CMG) +630%, Tractor Supply (TSCO) +315% and Novo Nordisk A/S (NYSE:NVO) +387%. Your managers are at fault here because we sold all of these (in 2017-18) for non-fundamental reasons. All of these continued to be great businesses and management has executed at very high levels. In all three cases, we made a decision to sell because we thought the stock price got way ahead of itself.

Our main take-away lesson has to be Do NOT sell your winners and avoid adding more to your losers. Or as Peter Lynch once famously put it: “Selling your winners and holding your losers is like cutting the flowers and watering the weeds.”

We were fortunate to purchase CMG, TSCO and NVO at very attractive prices when these companies hit a temporary speed bump in their business. These were businesses that were simple to understand and we knew them very well as we had a chance to study them thoroughly for some time prior to our purchase. However, when you choose to sell you get the cash proceeds. First, you have to pay the capital gains tax and then you have to make another ‘buy decision’ or, in a lot of cases, a number of them. The more decisions you make, the higher probability that you will make mistakes. More often than not, you end up buying a business that you know less well and end up partnering with the management team, whose character, management and capital allocation abilities may still be somewhat moot to you. These things take time to get comfortable with! As we have learned many times over throughout our investing careers, it is usually significantly more profitable and also more enjoyable to stay with the great business that you know very well and have a high confidence level in their management team. And this is exactly what happened with CMG, TSCO and NVO. It was a costly mistake for our investors and it’s an extremely valuable lesson that we have learned.”

4. Fidelity MSCI Health Care Index ETF (NYSE:FHLC)

5 Year Performance as of September 4: 38.46%

The Fidelity MSCI Health Care Index ETF (NYSE:FHLC) provides broad coverage of the entire U.S. healthcare market, encompassing over 300 companies of different sizes, including large, mid-sized, and small-cap, and spanning across more than 10 subsectors. This wide-ranging diversification reduces the fund’s reliance on dominant pharmaceutical giants and increases its exposure to sectors such as drug retailers and insurance within the healthcare industry. The benchmark index it tracks is the MSCI USA IMI Health Care 25/50 Index. As of September 1, 2023, Fidelity MSCI Health Care Index ETF (NYSE:FHLC) features an expense ratio of 0.08% and holds a portfolio containing 406 stocks.

Pfizer Inc. (NYSE:PFE) is a prominent holding of Fidelity MSCI Health Care Index ETF (NYSE:FHLC). Pfizer Inc. (NYSE:PFE) engages in the worldwide exploration, production, promotion, and distribution of biopharmaceutical products. It provides pharmaceuticals and vaccines across a range of therapeutic fields, including cardiovascular health, metabolic conditions, migraine, women’s health, and COVID-19. According to Insider Monkey’s second quarter database, Ric Dillon’s Diamond Hill Capital is a notable stakeholder of the company, with 6.9 million shares worth $253 million.

Diamond Hill Capital made the following comment about Pfizer Inc. (NYSE:PFE) in its Q3 2022 investor letter:

“Also among our bottom contributors were health care products manufacturer Abbott Labs, global pharmaceutical company Pfizer Inc. (NYSE:PFE), media and technology giant Alphabet, and insurance company American International Group (AIG). Although Pfizer continues to report strong performance of its core drugs, sales of its COVID vaccine and treatment have likely peaked and sales are expected to decline going forward. We remain optimistic about the company long term as we believe management is taking the company in the right direction, focusing R&D, and making strategic acquisitions with profits generated from COVID vaccine sales.”

3. Vanguard Health Care Index Fund (NYSE:VHT)

5 Year Performance as of September 4: 39.24%

Vanguard Health Care Index Fund (NYSE:VHT) aims to replicate the performance of the Spliced U.S. Investable Market Health Care 25/50 Index, which serves as a reference point for assessing the performance of stocks within the healthcare sector. This ETF is managed passively, employing a full-replication approach when feasible and a sampling method if regulatory requirements necessitate it. It includes shares of companies engaged in offering medical and health care products, services, technology, and equipment. Vanguard Health Care Index Fund (NYSE:VHT) was established on January 26, 2004, and currently holds a portfolio of 416 stocks, with an associated expense ratio of 0.10%. It is one of the best healthcare ETFs to buy.

AbbVie Inc. (NYSE:ABBV) is one of the top holdings of Vanguard Health Care Index Fund (NYSE:VHT). AbbVie Inc. (NYSE:ABBV) engages in the global discovery, development, production, and distribution of pharmaceutical products. According to Insider Monkey’s second quarter database, AbbVie Inc. (NYSE:ABBV) was part of 74 hedge fund portfolios, compared to 75 in the last quarter. D E Shaw is a prominent stakeholder of the company, with 1.6 million shares worth $224 million.

Baron Health Care Fund made the following comment about AbbVie Inc. (NYSE:ABBV) in its second quarter 2023 investor letter:

“Apart from stock selection, the Fund also benefited from its lower exposure to AbbVie Inc. (NYSE:ABBV), whose shares were down almost 15% in the Benchmark due to concerns about the company’s growth profile after the loss of exclusivity for lead drug Humira. We exited our position during the quarter. We sold AbbVie Inc. due to our less optimistic view of the company’s pipeline and long-term growth profile.”

2. Health Care Select Sector SPDRFund (NYSE:XLV)

5 Year Performance as of September 4: 44.32%

Health Care Select Sector SPDRFund (NYSE:XLV)’s primary goal is to deliver investment outcomes that closely mirror the price and yield performance of the Health Care Select Sector Index, minus associated expenses. This index is designed to offer specific representation of companies operating in different sectors within the healthcare industry, including pharmaceuticals, health care equipment and supplies, health care providers and services, biotechnology, life sciences tools and services, and health care technology. Health Care Select Sector SPDRFund (NYSE:XLV) was established on December 16, 1998, and as of September 4, 2023, it holds a portfolio consisting of 65 stocks, with an associated expense ratio of 0.10%. It is one of the best healthcare ETFs to buy.

UnitedHealth Group Incorporated (NYSE:UNH) is the largest holding of Health Care Select Sector SPDRFund (NYSE:XLV). It operates as a diversified healthcare company in the United States. According to Insider Monkey’s Q2 database, 111 hedge funds were bullish on UnitedHealth Group Incorporated (NYSE:UNH), with Rajiv Jain’s GQG Partners holding the biggest stake.

L1 Capital International Fund had this to say about UnitedHealth Group Incorporated (NYSE:UNH) in its second quarter 2023 investor letter:

“Close observers of the Fund will note the increased exposure to healthcare, currently 13% of the portfolio. Healthcare is generally less macro-sensitive than some other sectors. In a reversal of market sentiment compared to 2022, the healthcare sector has been under modest pressure due to what we consider to be some short-term transitory issues, while technology, particularly anything to do with AI, has become the market’s dish du jour. We have been selectively increasing our investment in a few very high-quality healthcare businesses at prices we consider to be fair. UnitedHealth Group Incorporated (NYSE:UNH) is now a top 10 holding, and our investment thesis is outlined in this report.

We have previously written on our exposure to taxes through our investment in Intuit and its market leading TurboTax franchise (Intuit also owns the QuickBooks small business accounting franchise, Credit Karma and Mailchimp). UnitedHealth Group (UnitedHealth) is leading the charge to postpone the inevitable, while lowering overall healthcare system costs.

U.S. health spending has outpaced GDP growth for decades, with spending on healthcare increasing from around 12% of GDP in the 1980s to nearly 20% today, driven by advancements in healthcare capabilities and an aging population with increased life expectancy…” (Click here to read the full text)

1. iShares U.S. Medical Devices ETF (NYSE:IHI)

5 Year Performance as of September 4: 45.16%

iShares U.S. Medical Devices ETF (NYSE:IHI) aims to replicate the investment performance of the Dow Jones U.S. Select Medical Equipment Index, which consists of U.S. stocks within the medical devices industry. This ETF was founded on May 1, 2006, and as of September 1, 2023, it possesses total assets valued at $5.6 billion. iShares U.S. Medical Devices ETF (NYSE:IHI)’s portfolio includes 61 stocks, and it maintains an expense ratio of 0.40%. It is one of the premier healthcare ETFs to invest in.

iShares U.S. Medical Devices ETF (NYSE:IHI)’s largest holding is Thermo Fisher Scientific Inc. (NYSE:TMO). The company offers life sciences solutions, analytical tools, specialized diagnostics, laboratory equipment, and biopharmaceutical services worldwide. According to Insider Monkey’s second quarter database, Thermo Fisher Scientific Inc. (NYSE:TMO) was part of 103 hedge fund portfolios, compared to 98 funds in the earlier quarter. Chris Hohn’s TCI Fund Management is the leading position holder in the company, with a position worth $1.65 billion.

Weitz Partners III Opportunity Fund made the following comment about Thermo Fisher Scientific Inc. (NYSE:TMO) in its second quarter 2023 investor letter:

“Portfolio activity this quarter included opportunistically initiating a position in life sciences tool and equipment maker Thermo Fisher Scientific Inc. (NYSE:TMO), a long-time holding of other Weitz portfolios, at an attractive valuation.”

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