Which Healthcare ETF Is the Better Buy: Fidelity’s FHLC or State Street’s XLV?

Fidelity’s FHLC and State Street’s XLV are two healthcare ETFs that investors can consider when looking for exposure to the U.S. healthcare market. Both ETFs have identical expense ratios of 0.08%, but they differ in their approach and composition. FHLC provides broad-spectrum coverage of the healthcare market, while XLV targets S&P 500 constituents with a more concentrated approach.

XLV, launched in 1998, is a pillar of the sector with decades of history. It includes 61 holdings drawn from the S&P 500, focusing on large-cap stability. The fund's largest positions include Eli Lilly (LLY), Johnson & Johnson (JNJ), and Abbvie (ABBV). It pays a 1.4% dividend yield, based on a recent share price of $177.2.

FHLC, launched in 2013, offers a more granular look at the industry by including hundreds of smaller healthcare companies. The fund holds 365 securities to track the MSCI USA IMI Health Care Index, mirroring its peer's sector weightings of 99% healthcare and 1% technology. Its top holdings are also less concentrated: Eli Lilly (13.20%), Johnson & Johnson (8.34%), and Abbvie (6.83%). FHLC pays a 1.2% dividend yield, based on a recent share price of $85.1.

Both ETFs have delivered positive returns in the healthcare sector, which has been an interesting sector to watch in recent years due to advancements in GLP-1 drugs and biopharma dealmaking. However, neither has outperformed significantly. In terms of assets under management and liquidity, XLV has a significant advantage with nearly 15 times the assets of FHLC.

For most long-term investors, both ETFs are excellent choices. However, Fidelity platform investors may prefer FHLC, while everyone else might find XLV's scale and history make it a more established option for a core healthcare allocation.