Best Healthcare ETFs by Performance

Government-mandated drug price caps caused a significant price drop in biopharma stocks early in 2023, whereas the medical devices industry led the healthcare sector with gains. See the best healthcare ETFs by performance, as well as details on the top-performing funds. 

What Is a Healthcare ETF? 

A healthcare ETF is an exchange-traded fund that invests in a diversified portfolio of healthcare companies, such as pharmaceutical, biotechnology, medical device and healthcare service providers. The objective of a healthcare ETF is to provide exposure to the healthcare industry's performance and offer investors a way to invest in a diversified basket of healthcare stocks. 

Investing in a healthcare ETF can be an effective way for investors to gain exposure to the healthcare industry without having to purchase individual healthcare stocks. This can help to reduce risk and provide diversification across different subsectors of the healthcare industry. 

Best Healthcare ETFs for 2023 Based on Performance 

The best healthcare ETFs for 2023, as measured by performance, have benefited by outsized gains within the medical devices industry. Returns for the broad-based healthcare index funds have been dragged down by the lackluster performance of pharma stocks and biotechnology, which tend to receive large allocations in these funds. 

Here are the best healthcare ETFs based on year-to-date performance through March 31, 2023. 

First Trust Indxx Medical Devices ETF 

The First Trust Indxx Medical Devices ETF (MDEV) tracks an equal-weighted index that gives global exposure to the medical equipment industry. 

• YTD return: 8.40% 
• Assets under management: $2.05M 
• Expense ratio: 0.70% 
• As of date: March 31, 2023 

ARK Genomic Revolution ETF 

The ARK Genomic Revolution ETF (ARKG) is an actively managed fund that targets companies involved in the genomics industry, which focuses on the function, structure, editing and mapping of genomes. 

• YTD return: 6.52% 
• Assets under management: $1.92B 
• Expense ratio: 0.75% 
• As of date: March 31, 2023 

SPDR S&P Health Care Equipment ETF 

The SPDR S&P Health Care Equipment ETF (XHE) tracks an equal-weighted index of U.S. healthcare equipment and supplies companies. 

• YTD return: 4.14% 
• Assets under management: $482.12M 
• Expense ratio: 0.35% 
• As of date: March 31, 2023 

ROBO Global Healthcare Technology and Innovation ETF 

The ROBO Global Healthcare Technology and Innovation ETF (HTEC) tracks a proprietary index of global healthcare technology companies.

• YTD return: 3.22% 
• Assets under management: $102.57M 
• Expense ratio: 0.68% 
• As of date: March 31, 2023 

iShares U.S. Medical Devices ETF 

The iShares U.S. Medical Devices ETF (IHI) tracks a market-cap-weighted index of manufacturers and distributors of medical devices in the U.S. 

• YTD return: 2.72% 
• Assets under management: $6.06B 
• Expense ratio: 0.39% 
• As of date: March 31, 2023 

Benefits and Risks of Investing in Healthcare ETFs 

Investing in healthcare ETFs can provide several benefits, but it also involves risks. Here are some potential benefits and risks to consider: 

Benefits of Investing in Healthcare ETFs 

• Diversification: Healthcare ETFs invest in a diversified portfolio of healthcare companies, which can help reduce the risk associated with investing in individual healthcare stocks. 
• Exposure to a growing industry: The healthcare industry is expected to grow significantly in the coming years, driven by an aging population and increasing demand for healthcare services. Investing in healthcare ETFs can provide exposure to this growth potential. 
• Access to different subsectors: Healthcare ETFs typically invest in various subsectors of the healthcare industry, such as pharmaceuticals, biotechnology, medical devices and healthcare services. This provides investors with exposure to different segments of the industry. 
• Lower fees: Healthcare ETFs typically have lower fees compared to actively managed healthcare funds, making them a more cost-effective way to invest in the healthcare industry. 

Risks of Investing in Healthcare ETFs 

• Market risk: Like any other investment, healthcare ETFs are subject to market risk, which means that their value can fluctuate depending on market conditions. 
• Concentration risk: Some healthcare ETFs may have a higher concentration of holdings in certain subsectors or companies, which can increase their exposure to risks associated with those subsectors or companies. 
• Regulatory risk: The healthcare industry is heavily regulated, and changes in regulations can have a significant impact on healthcare companies and their stock prices. Therefore, this regulatory risk can also affect the price of healthcare ETFs. 
• Company-specific risk: Even though healthcare ETFs provide diversification, they can still be exposed to company-specific risks, such as product recalls, litigation or regulatory issues. 

Types of Healthcare ETFs 

There are several types of healthcare ETFs that investors can consider. Here are some of the most common types: 

• Broad healthcare ETFs: These ETFs invest in a broad range of healthcare companies across different subsectors, including pharmaceuticals, biotechnology, medical devices, healthcare services and more. Examples of broad healthcare ETFs include the Health Care Select Sector SPDR Fund (XLV), the iShares Global Healthcare ETF (IXJ) and the Vanguard Health Care ETF (VHT). 
• Pharmaceutical ETFs: These ETFs invest in companies that research, develop, manufacture and market pharmaceutical products. Examples of pharmaceutical ETFs include the iShares U.S. Pharmaceuticals ETF (IHE) and the Invesco Dynamic Pharmaceuticals ETF (PJP). 
• Biotechnology ETFs: These ETFs invest in companies that research, develop, and market biotechnology products. Examples of biotechnology ETFs include the iShares Nasdaq Biotechnology ETF (IBB) and the SPDR S&P Biotech ETF (XBI). 
• Medical devices ETFs: These ETFs invest in companies that manufacture and distribute medical devices, including surgical equipment, diagnostic devices and medical imaging equipment. Examples of medical devices ETFs include the iShares U.S. Medical Devices ETF (IHI) and the Invesco Dynamic Medical & Biotech ETF (PBE). 
• Healthcare services ETFs: These ETFs invest in companies that provide healthcare services, including hospitals, clinics, nursing homes and managed care providers. Examples of healthcare services ETFs include the iShares U.S. Healthcare Providers ETF (IHF) and the Invesco S&P 500 Equal Weight Health Care ETF (RYH). 

Bottom Line 

Healthcare ETFs can provide a combination of diversification and long-term growth potential. However, it's important to understand the benefits and risks of investing in healthcare ETFs, and it’s important for investors to consider their investment objectives, risk tolerance and investment time horizon before making any investment decisions to buy shares of these funds.