Owing to the necessity and importance of healthcare, the industry is constantly in the limelight. With recent trends like digital technology upgrades and increasing incidences of chronic conditions, the healthcare industry is benefitting significantly.
Against this background, investors could consider investing in fundamentally solid healthcare ETFs iShares Biotechnology ETF (IBB), Vanguard Health Care Index Fund ETF Shares (VHT), and The Health Care Select Sector SPDR Fund (XLV) for defensive growth. Healthcare sector is often considered a key component of defensive investing due to their ability to offer stability and resilience, even during economic downturns.
Healthcare demand is continuously on the rise and is outpacing the supply of available providers. Cardiologist demand is expected to increase by over 17%, whereas critical care & pulmonary physicians and Urologists segment demand is expected to rise by 14%.
Factors such as the aging population, the rise of chronic diseases, and workforce shortages owing to burnout and retirement are contributing to the higher demands for the healthcare industry.
The third quarter of 2024 marked the largest scale of merger and acquisition (M&A) activity with rising Hospital mergers and acquisitions. Over 27 transactions were announced in the quarter, bringing it to the pre-pandemic activity levels. With such trends, transacted revenue reached $13.30 billion in the third quarter and marked the highest levels in the past eight years.
Also, the healthcare market is flourishing exponentially thanks to the surging AI investments for productivity and cost reduction and continuous innovations in digital health and biotechnology. The global AI in healthcare market is expected to see strong growth in the coming years. The market is expected to grow to $148.40 billion by 2029, exhibiting a 48.1% CAGR.
Considering the industry’s encouraging trends, let’s look at the fundamentals of the top three Health & Biotech ETFs, beginning with number 3.
ETF #3: iShares Biotechnology ETF (IBB)
IBB tracks a market-cap-weighted index of US biotechnology companies listed on US exchanges. The ETF invests in companies that are engaged in the R&D of therapeutic treatments but are not focused on the commercialization and mass production of pharmaceutical drugs. The ETF tracks the ICE Biotechnology Index.
The fund has assets under management (AUM) of $7.30 billion. IBB’s top holdings include Gilead Sciences, Inc. (GILD) with a 9.16% weighting, followed by Amgen Inc. (AMGN) at 7.86%, and Vertex Pharmaceuticals Incorporated (VRTX) and Regeneron Pharmaceuticals, Inc. (REGN) at 7.86% and 6.67%, respectively.
The ETF has a total of 211 holdings, with its top 10 assets comprising 49.69% of its AUM. IBB’s expense ratio is 0.45%, lower than the category average of 0.52%.
IBB pays an annual dividend of $0.41, which translates to a yield of 0.31% at the current price level. The company’s dividend payouts have increased at a CAGR of 24.4% over the past five years.
IBB has surged 11.1% over the past six months and 22.5% over the past year to close the last trading session at $142.16. It has a beta of 0.84. The fund’s NAV was $142.22 as of October 23, 2024.
IBB’s POWR Ratings reflect solid prospects. The fund has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
IBB has an A grade for Trade and Buy & Hold. It also has a B grade for Peer. Within the A-rated Health & Biotech ETFs group, it is ranked #4 of the 42 ETFs.
To access all IBB’s POWR Ratings, click here.
ETF #2: Vanguard Health Care Index Fund ETF Shares (VHT)
VHT is an ETF managed by the Vanguard Equity Index Group. The fund seeks to track the performance of a benchmark index that measures the stocks in the healthcare sector. VHT tracks the performance of the MSCI US IMI 25/50 Health Care by using a full-replication strategy.
With $18.20 billion in AUM, VHT’s top holdings are Eli Lilly and Company (LLY), having a 10.95% weighting, UnitedHealth Group Incorporated (UNH) at 8.23%, and AbbVie, Inc. (ABBV) and Johnson & Johnson (JNJ) at 4.83% and 4.51%, respectively. The ETF has a total of 414 holdings, with its top 10 assets comprising 47.92% of its AUM.
The fund has an expense ratio of 0.10%, lower than the category average of 0.52%. It has a beta of 0.73.
VHT pays an annual dividend of $3.85, which translates to a 1.39% yield at the current price level. Moreover, the fund’s dividend payouts have increased at a CAGR of 7.4% over the past three years. VHT has paid its dividends for 17 consecutive years.
VHT has gained 6.9% over the past six months and 19.6% over the past year to close the last trading session at $275.72. The fund’s NAV was $275.82 as of October 23, 2024.
VHT’s sound fundamentals are reflected in its POWR Ratings. The fund has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The fund has an A grade for Trade and Buy & Hold. Of the 42 ETFs in the same group, VHT is ranked #2.
Click here to see all the VHT ratings.
ETF #1: Health Care Select Sector SPDR Fund (XLV)
XLV offers exposure to the U.S. healthcare industry across various segments, including pharmaceuticals, healthcare equipment and supplies, healthcare providers and services, and biotechnology. The fund tracks healthcare stocks within the S&P 500 Index, weighted by their market cap. It tracks the performance of the Health Care Select Sector index.
The fund has an AUM of $41.08 billion. Its top holdings include LLY with a 12.94% weighting, followed by UNH at a 9.49% weighting, and JNJ and ABBV at 7.10% and 6.01%, respectively. XLV has a total of 63 holdings, with the top 10 assets comprising 57.54% of its AUM.
The fund has an expense ratio of 0.09%, compared to the category average of 0.52%. Over the past month, XLV fund inflows came in at $176.38 million, and $162.68 million over the past six months.
XLV’s annual dividend of $2.27 translates to a 1.50% yield at the current price level. Further, the fund’s dividend payouts have increased at a CAGR of 7.9% over the past three years. XLV has raised dividends for 14 consecutive years.
XLV has gained 6.4% over the past six months and 18.2% over the past year to close the last trading session at $150.40. Also, it has a beta of 0.70. The fund has a NAV of $150.40 as of October 23, 2024.
XLV’s POWR Ratings project its strong prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
XLV has an A grade for Buy & Hold and Trade. The fund is ranked first among the 42 ETFs in the Health & Biotech ETFs group.
To access all the POWR Ratings for XLV, click here.
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XLV shares rose $0.31 (+0.21%) in after-hours trading Thursday. Year-to-date, XLV has gained 10.79%, versus a 23.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions. More…