Which Healthcare ETF Is the Better Buy: iShares’ Global IXJ or First Trust’s Biotech FBT?

The choice between iShares Global Healthcare ETF (IXJ) and First Trust NYSE Arca Biotechnology Index Fund (FBT) presents investors with two distinct strategies within the healthcare sector. iShares IXJ provides broad, lower-cost exposure to global healthcare sectors, while FBT offers a concentrated, high-conviction approach focused on biotechnology companies.

IXJ's diversified portfolio includes 109 holdings, with a substantial 70% allocation to pharmaceuticals, biotech, and life sciences, complemented by 29% invested in health care equipment and services. This diversification strategy aims to offer stability and lower risk, making it a dependable foundation for long-term investors. The fund's expense ratio of 0.38% is lower than FBT's 0.55%, which can lead to greater long-term returns due to reduced management fees.

On the other hand, FBT is highly concentrated, holding only 30 biotechnology-related positions. Its top holdings include Halozyme Therapeutics, Natera, and Illumina, which have contributed to impressive returns over the past year as the biotech sector has flourished. However, FBT's concentrated nature means it is more susceptible to the ups and downs of individual biotech companies, particularly during clinical trial failures or shifts in investor sentiment.

While FBT has delivered better returns than IXJ over the last year, the future of this performance trend remains uncertain. For most long-term investors, the lower cost, dividend income, and broad diversification offered by IXJ make it the more dependable choice. However, FBT could be a compelling additional investment for those who believe the biotech sector's best days lie ahead and are willing to accept the higher risk associated with concentrated holdings.