Investors Compare Low-Cost Healthcare ETFs Against Concentrated Strategies

Investors are evaluating several healthcare exchange-traded funds (ETFs) to balance cost, diversification, and performance. Fidelity Investments offers the MSCI Health Care Index ETF (FHLC), which has emerged as a strong competitor due to its low 0.08% expense ratio and broad diversification of 334 to 365 holdings. FHLC has consistently outperformed the iShares U.S. Healthcare ETF (IYH) across 1, 3, 5, and 10-year timeframes, posting a trailing 12-month return of 26.4% against IYH's 23.7%.

Alternative strategies focus on reducing the influence of mega-cap firms or narrowing the scope to specific niches. Invesco's S&P 500 Equal Weight Health Care ETF (RSPH) uses an equal-weighted approach to minimize dependence on industry giants, though it carries a higher expense ratio of 0.4%. In contrast, iShares' U.S. Pharmaceuticals ETF (IHE) provides concentrated exposure to drugmakers, resulting in a significant one-year return of 54.98%, far outpacing the 23.98% return of the broader State Street Health Care Select Sector SPDR ETF (XLV).

Despite different weighting strategies, many of these funds share heavy concentrations in blue-chip companies. Eli Lilly, Johnson & Johnson, and AbbVie remain dominant holdings across the FHLC, IYH, and IHE portfolios, with some concentrated funds dedicating nearly 50% of their assets to a few primary drugmakers.