Investors choosing between Fidelity MSCI Health Care Index ETF (NYSEMKT:FLC) again State Street Health Care Select Sector SPDR ETF (NYSEMKT:XLV) may find that the former offers wider market exposure while the latter offers higher liquidity and higher trailing 12-month returns.
Both funds target the home health care sector, providing exposure to pharmaceuticals, biotechnology, and equipment suppliers. While FHLC covers a wide range of company sizes including mid-cap and small-cap stocks, XLV focuses firmly on the healthcare sectors of the S&P 500.
This choice between broad market diversification and blue-chip concentration is a central consideration for investors looking to gain targeted sector exposure.
Summary (cost and size)
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Metric
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FHLC
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XLV
|
|
The issuer
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Honesty
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The SPDR
|
|
Cost estimate
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0.08%
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0.08%
|
|
1 year refund (from May 18, 2026)
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18.59%
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16.86%
|
|
Return yield
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1.40%
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1.70%
|
|
Beta
|
0.61
|
0.58
|
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AUM
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$2.9 billion
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$37.5 billion
|
Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-year return represents the total return over the next 12 months. The return yield is the distribution yield trailing 12 months.
Both of these funds are very economical and come with 0.08% expense ratios. However, the State Street fund offers a slightly higher payout for income seekers, with a trailing 12-month return of 1.7% compared to 1.4% for the Fidelity fund. This yield differential may be attractive to those who prioritize current income over more recent growth.
Performance & risk comparison
|
Metric
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FHLC
|
XLV
|
|
Maximum limit (5 years)
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(17.70%)
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(17.10%)
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|
$1,000 growth over 5 years (total return)
|
$1,231
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$1,284
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What’s inside
The State Street Health Care Select Sector SPDR ETF provides concentrated exposure to 60 major health care stocks. Its major positions include Eli Lilly & Co (NYSE:LLY) by 15.18% Johnson & Johnson (NYSE:JNJ) were changed to -10.42%. AbbVie (NYSE:ABBV) by 7.09%. Launched in 1998, it offers a 100% stake in the healthcare sector and has paid $2.51 per share over the trailing 12 months. The fund focuses exclusively on established, highly leveraged companies within the benchmark S&P 500 Index.
The Fidelity MSCI Health Care Index ETF uses a very broad strategy with 365 holdings. Its top holdings include Eli Lilly & Co at 13.16%, Johnson & Johnson at 8.90%, and AbbVie at 6.06%. Launched in 2013, the fund has a trailing 12-month dividend yield of $1.01 per share. Tracking the MSCI USA IMI Health Care Index, it captures small and medium-sized companies that outperform its competitors, although it remains fully invested in healthcare sector stocks.
For more information on ETF investing, see the full guide at this link.
What does this mean for investors?
For investors looking for stocks in the health care industry, the State Street Health Care Select Sector SPDR ETF (XLV) and the Fidelity MSCI Health Care Index ETF (FHLC) offer an efficient way to get that exposure. These two funds take very different approaches, so deciding where to invest depends on which strategy best suits your goals.
XLV focuses its holdings on healthcare companies within the S&P 500. That’s why it only plays 60 holdings, although its high AUM can attract active investors. However, more than 25% of the ETF is focused on Eli Lilly and Johnson & Johnson alone. Therefore, the performance of the fund is highly dependent on these businesses.
XLV’s high dividend yield and focus on blue-chip companies can appeal to conservative investors, and those looking to buy and hold for the long term.
FHLC offers a highly diversified fund with more than 300 holdings, including mid-cap and small-cap stocks not found in XLV. This diversification reduces reliance on a few companies, and opens up opportunities for greater gains, as smaller companies tend to grow faster than their larger brothers, as shown in FHLC’s one-year returns.
That said, small businesses tend to deliver volatile performance, which has contributed to FHLC’s high beta and high volatility. FHLC is for investors who want broad exposure to the health care sector, and who are comfortable with the added risk and volatility as a high yield dividend trade.
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Robert Izquierdo holds positions in Johnson & Johnson. The Motley Fool has positions in and recommends AbbVie and Eli Lilly. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a policy of disclosure.
Better Health Care ETF: Fidelity’s FHLC vs. State Street’s XLV was first published by The Motley Fool
