If you're looking to invest in the healthcare sector, ETFs like XLV, VHT, and FHLC offer a simple way to gain exposure to a broad range of healthcare companies. Here's what you need to know:
- XLV focuses on large-cap U.S. healthcare giants like Johnson & Johnson and AbbVie, offering stability and consistent performance.
- VHT provides broader exposure, including mid- and small-cap companies, capturing more of the sector's growth potential.
- FHLC delivers extensive diversification across 392 holdings, mirroring VHT's approach but with a slightly different weight distribution.
Quick Comparison
| ETF | Expense Ratio | Market Cap Focus | Holdings | Best For |
|---|---|---|---|---|
| XLV | 0.08% | Large-cap | 60 | Stability and dividends |
| VHT | 0.09% | Large, mid, small-cap | 397 | Growth opportunities |
| FHLC | 0.08% | Large, mid, small-cap | 392 | Diversified exposure |
Key takeaway:
- Choose XLV for concentrated exposure to blue-chip healthcare companies.
- Opt for VHT or FHLC if you want broader diversification, with your brokerage preference (Vanguard or Fidelity) helping guide the choice.
Keep reading for a deeper dive into their holdings, fees, and performance.
5 Best Healthcare ETFs (XLV, VHT, + More)
XLV - Health Care Select Sector SPDR Fund
The Health Care Select Sector SPDR Fund (XLV) provides focused access to the U.S. healthcare sector by investing in well-established, stable companies. With a robust $39.02 billion in assets and a five-star rating, XLV is designed to deliver consistent performance by targeting top-tier healthcare firms. Let’s take a closer look at its holdings, performance, and portfolio structure.
What XLV Holds
XLV's portfolio includes 60 carefully selected healthcare stocks. Its top four holdings - Eli Lilly & Co., UnitedHealth Group Inc., Johnson & Johnson, and AbbVie Inc. - make up approximately 35% of the fund's total value, while the top 10 holdings account for 57.71%. This strategy emphasizes stability by focusing on companies that deliver dependable pricing and yields.
XLV Returns and Performance
The fund's key holdings have significantly contributed to its returns. Over the 12 months ending September 26, 2025, Johnson & Johnson saw a 14.5% increase, while AbbVie grew by 18.3%.
XLV Costs and Stock Mix
XLV achieves diversification by spreading investments across pharmaceuticals, healthcare services, and medical equipment sectors. By concentrating on large, established companies, the fund's performance is closely tied to its leading holdings.
VHT - Vanguard Health Care ETF
VHT uses a full-replication strategy to provide broad exposure across various market caps, making it an attractive option for investors looking for diversified and cost-effective access to the healthcare sector.
What VHT Holds
VHT includes a wide range of healthcare stocks, from mid-cap and small-cap companies to major industry players. By employing a full-replication approach, the ETF aims to hold all the securities in its underlying index, ensuring its performance closely aligns with the overall healthcare sector. This strategy allows VHT to offer a comprehensive view of the sector's dynamics.
VHT Returns and Performance
The ETF's performance reflects its diverse holdings. By covering companies from different areas of the healthcare industry - spanning large pharmaceutical corporations to up-and-coming biotech firms - VHT aims to capture a variety of growth opportunities within the sector. This diversity is central to its performance metrics.
VHT Costs and Sector Coverage
For long-term investors, keeping costs low is critical. VHT has a net expense ratio of 0.09%, slightly higher than XLV's 0.08%. On a $10,000 investment, this difference translates to about $1 more in annual fees. Additionally, trading costs come into play; VHT's 30-day median bid-ask spread is 0.04%, compared to XLV's tighter 0.01% spread.
"There's little reason to pay more than 50 basis points (0.5%) in annual expenses for a sector ETF in 2025, especially when many charge a fraction of that."
– Tony Dong, MSc, Certified ETF Advisor (CETF®)
VHT’s full-replication strategy can result in higher portfolio turnover, which may lead to additional transaction costs. Over time, even small differences in expense ratios can add up, making cost efficiency a crucial consideration for those planning to hold healthcare exposure over the long term.
FHLC - Fidelity MSCI Health Care Index ETF
FHLC offers a cost-effective way to gain comprehensive exposure to the healthcare sector. This ETF from Fidelity tracks the MSCI USA IMI Health Care Index, covering 392 companies across various market sizes, providing broad access to the industry.
What FHLC Holds
FHLC includes a diverse portfolio of 392 healthcare companies, offering more variety than XLV's 62 holdings and closely aligning with VHT's 397 holdings. The ETF spans multiple healthcare subsectors, such as pharmaceuticals, biotechnology, medical devices, health insurance, hospitals, and healthcare technology. Its largest holding is Eli Lilly and Company (LLY) at 10.33%, followed by AbbVie, Inc. (ABBV) at 5.76%, UnitedHealth Group (UNH) at 4.94%, Johnson & Johnson (JNJ) at 4.88%, and Abbott Laboratories (ABT) at 3.92%. This diversification ensures that no single company overly influences the fund's performance.
The sector allocation highlights its balanced approach: 75.67% in health technology, 12.88% in health services, 4.29% in cash, 3.35% in distribution services, and 1.6% in retail trade. This broad coverage positions investors to benefit from growth opportunities across the healthcare industry.
FHLC Returns and Performance
FHLC's performance mirrors VHT's due to their almost identical holdings. Both ETFs offer exposure to a wide range of healthcare companies, from established pharmaceutical leaders to emerging biotech firms, allowing investors to tap into different growth phases within the sector.
While its broad diversification may limit the potential for outsized returns from top-performing companies, it also protects against significant losses from underperformers. Investors also benefit from dividend payments, which capture income from both well-established and forward-thinking healthcare firms.
FHLC Costs and Tax Benefits
FHLC stands out with its low expense ratio of 0.08%, matching XLV and slightly undercutting VHT's 0.09%. For a $10,000 investment, this translates to just $8 in annual management fees, making it an economical choice for accessing the healthcare sector.
| ETF | Expense Ratio | Annual Cost on $10,000 |
|---|---|---|
| FHLC | 0.08% | $8 |
| XLV | 0.08% | $8 |
| VHT | 0.09% | $9 |
In addition to its low fees, FHLC offers tax advantages for U.S. investors. It can be an effective tool for tax-loss harvesting when paired with similar funds like VHT. This strategy allows investors to sell one ETF at a loss and purchase a comparable fund, maintaining healthcare sector exposure while potentially reducing their tax liability.
For long-term investors focused on keeping costs low, FHLC's combination of extensive diversification and minimal fees makes it a compelling option. Over time, even small differences in expense ratios can significantly impact returns, thanks to the power of compounding.
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Side-by-Side Comparison: XLV vs VHT vs FHLC
Let’s break down the key differences and similarities between these healthcare ETFs to help you make an informed choice.
Comparison Table
| Metric | XLV | VHT | FHLC |
|---|---|---|---|
| Expense Ratio | 0.08% | 0.09% | 0.08% |
| Annual Cost on $10,000 | ~$8 | ~$9 | ~$8 |
| Market Cap Focus | Large-cap (S&P 500) | Large, mid, & small-cap stocks | Large, mid, & small-cap stocks |
| Concentration Level | High | Diversified | Diversified |
| No-Commission Trading | Varies by broker | Available for Vanguard clients | Available for Fidelity clients |
Main Differences and Similarities
The table highlights the most important metrics, but let’s dig into the details to understand what sets these ETFs apart.
XLV is heavily concentrated on large-cap healthcare companies, specifically those within the S&P 500. This focus can lead to potentially higher returns but also comes with increased risk if core holdings experience volatility. On the other hand, VHT and FHLC spread their investments across large, mid, and small-cap stocks, offering broader diversification and reducing the impact of individual stock swings.
When it comes to costs, XLV and FHLC share a lower expense ratio of 0.08%, compared to VHT, which has a slightly higher expense ratio of 0.09%. Brokerage relationships also play a role in selecting between these funds. For instance, Fidelity investors can trade FHLC commission-free, while Vanguard clients have the same benefit with VHT.
Another consideration is tax-loss harvesting. Both VHT and FHLC have nearly identical holdings, making it easier to find a tax-loss harvesting pair. In contrast, XLV’s more concentrated portfolio makes it harder to identify a suitable counterpart for this strategy.
Investment Decision Guidelines
Your choice between these ETFs should align with your investment goals, risk tolerance, and brokerage preferences.
- Choose XLV if you’re looking for focused exposure to large-cap healthcare giants and are comfortable with the potential for higher returns (and risks) tied to a concentrated portfolio.
- Choose VHT or FHLC if diversification is your priority. Both funds provide access to a broad range of healthcare sub-sectors such as pharmaceuticals, biotechnology, and medical services. The decision between the two often comes down to whether you’re a Fidelity or Vanguard client, as brokerage benefits can tip the scales.
Using Mezzi for ETF Selection and Portfolio Management
Mezzi’s AI-powered platform takes the guesswork out of selecting healthcare ETFs by analyzing your entire financial landscape. It doesn’t just help you pick the right healthcare ETFs - it also works to optimize your portfolio for better returns and smarter tax strategies. Let’s dive into how Mezzi’s features, like the X-Ray tool, can uncover hidden overlaps in your investments and help you make more informed decisions.
Mezzi's X-Ray Feature
Diversification is key to a balanced portfolio, but hidden overlaps can undermine that goal - especially when adding healthcare ETFs. Mezzi’s X-Ray feature scans your portfolio to identify stocks already present across your accounts, helping you avoid unintended concentration risks.
For instance, if you’re considering adding a healthcare ETF to your portfolio, the X-Ray tool highlights your current exposure to healthcare companies through other funds or accounts. This insight can reveal whether adding a concentrated healthcare fund might lead to overexposure, or if a broader mix of small- and mid-cap healthcare stocks would better complement your existing investments.
This feature is particularly useful for those managing multiple accounts. You might discover that your 401(k) already holds healthcare stocks through target-date funds, while your taxable account includes individual pharmaceutical companies. Mezzi’s comprehensive analysis ensures you won’t accidentally over-concentrate in a specific healthcare sub-sector, keeping your portfolio balanced and diversified.
Tax Savings with Mezzi
Investing in healthcare ETFs comes with unique tax-saving opportunities, and Mezzi’s platform helps you make the most of them. Its advanced tax optimization tools are designed to help you avoid costly mistakes, like triggering wash sales - a rule that can significantly impact your after-tax returns.
Take tax-loss harvesting, for example. Consider two healthcare ETFs like FHLC and VHT. These funds have similar holdings and fee structures but track slightly different benchmarks, making FHLC a strong tax-loss harvesting partner for both VHT and XLV. If one fund declines temporarily, you can sell it to realize capital losses for tax purposes and immediately buy the other to maintain your healthcare sector exposure.
Mezzi tracks these opportunities across all your linked accounts, ensuring compliance with the 30-day wash sale rule. This is especially important for investors juggling taxable accounts, IRAs, and 401(k)s. By monitoring your investments, Mezzi ensures you don’t inadvertently purchase a “substantially identical” security too soon, helping you maximize your tax efficiency.
For active investors managing multiple healthcare positions, Mezzi’s tax optimization tools can lead to significant savings. Keep in mind that profits from healthcare ETFs are taxable unless held in a tax-advantaged account, making these strategies even more impactful.
Complete Financial View
Mezzi goes beyond individual features to provide a holistic view of your financial situation, making healthcare ETF allocation decisions easier and more effective. Instead of toggling between brokerage apps and spreadsheets, Mezzi consolidates all your financial data into one unified platform.
This aggregated view is invaluable when deciding how to allocate healthcare ETFs. For example, you might discover that your spouse’s employer 401(k) already includes healthcare exposure through target-date funds. This could influence whether you choose XLV’s concentrated large-cap focus or VHT’s broader market coverage for your taxable accounts.
Mezzi’s AI-driven insights don’t just provide a snapshot - they actively suggest actions and flag potential issues. If your healthcare allocation drifts below your target due to strong performance in other sectors, Mezzi can recommend specific purchase amounts for ETFs like XLV, VHT, or FHLC to rebalance your portfolio effectively.
Additionally, Mezzi’s Financial Calculator takes the guesswork out of long-term planning by incorporating asset manager fees into retirement projections. It factors in expense ratios - like XLV’s 0.08%, VHT’s 0.09%, or FHLC’s 0.08% - to show how even small fee differences can compound over decades. This transparency helps you make informed decisions that align with your financial goals.
Final Thoughts: Picking the Right Healthcare ETF
Choosing the right healthcare ETF boils down to your individual risk tolerance, investment timeline, and cost preferences. Each of the three ETFs provides solid exposure to the healthcare sector with competitive expense ratios, but their differences in holdings and market cap focus can lead to varying performance outcomes.
- XLV is a great fit for cautious investors who want stability and large-cap exposure, paired with a low 0.08% expense ratio.
- VHT offers a broader market reach, including mid- and small-cap stocks, with a slightly higher fee of 0.09%.
- FHLC strikes a balance with diversified holdings and a 0.08% expense ratio.
Here’s a breakdown of which ETF might suit you best, depending on your investment priorities.
Our Recommendations
- For Conservative Investors: If you value income and stability, XLV is a smart choice. Its focus on large-cap healthcare companies provides steady returns with lower volatility. This ETF is particularly appealing for those nearing retirement or seeking reliable healthcare sector exposure with dividend potential.
- For Growth-Oriented Investors: Looking to tap into innovation and long-term growth? VHT stands out. Its inclusion of smaller companies - often at the forefront of medical advancements - offers potential for higher returns over time, making it ideal for those with a longer investment horizon.
- For Balanced Investors: If you want a diversified approach without taking on too much risk, FHLC is worth considering. Its broad, index-driven strategy captures healthcare growth while managing volatility, making it a dependable core holding for a diversified portfolio.
Mezzi’s platform can further refine your healthcare investment strategy. With tools like the X-Ray feature, you can avoid over-concentration in specific healthcare sub-sectors. Meanwhile, its tax optimization tools help maximize after-tax returns through strategic rebalancing and loss harvesting.
Ultimately, the best ETF for you depends on your personal financial goals and investment profile. With Mezzi’s assistance, you can coordinate your investments across various accounts - whether it’s a 401(k), IRA, or taxable account - while minimizing fees and tax liabilities.
FAQs
How do XLV, VHT, and FHLC differ in market cap focus, and what does this mean for my investment strategy?
XLV and VHT use a market-cap-weighted strategy, focusing more on larger healthcare companies. In contrast, FHLC follows the MSCI USA IMI Health Care Index, which spans small, mid, and large-cap companies, offering a wider range of exposure.
These approaches can shape your investment strategy differently. Funds like XLV and VHT, with their market-cap weighting, might offer more stability but could also concentrate investments in a few industry giants. FHLC’s broader reach, however, could provide greater diversification, potentially balancing risk with growth opportunities. When deciding on the right ETF, think about your investment goals and how much risk you're comfortable taking.
How do expense ratios affect the long-term returns of healthcare ETFs, and should they influence my decision?
Expense ratios are a key factor in determining the growth of your investments over time. A lower expense ratio means fewer fees are deducted for fund management, allowing more of your money to stay invested and benefit from compounding. Even a seemingly small difference in expense ratios can lead to substantial savings and returns over the years.
When evaluating healthcare ETFs, it's essential to look at the expense ratio in the context of other critical factors like performance, diversification, and how well the fund aligns with your investment goals. While keeping costs low is important, it’s just one piece of the puzzle and shouldn’t be the only factor driving your decision.
Can XLV, VHT, or FHLC be used for tax-loss harvesting, and how does this strategy apply to these ETFs?
Tax-loss harvesting involves selling an investment at a loss to offset capital gains, potentially lowering your tax bill. Exchange-traded funds (ETFs) like XLV, VHT, and FHLC are often good options for this approach. These ETFs all focus on the healthcare sector but differ slightly in their composition and weighting. This means you can remain invested in the sector while steering clear of the IRS's wash-sale rules, which prevent you from buying back the same or a nearly identical security within 30 days.
It's always a smart move to consult a tax professional before diving into tax-loss harvesting. They can help you navigate IRS regulations and customize the strategy to fit your financial goals.
Related Blog Posts
- Health Care sector: which stocks/ETFs add diversification without duplicating my existing exposure?
- XLV vs other healthcare ETFs I already own: 1/3/5-year total return, sector/holding overlap, and fees - should I consolidate?
- XLV vs my other healthcare funds: compare expense ratios, historical volatility, tracking difference, and overlap.
- XLV’s performance vs other healthcare ETFs in my portfolio over 1/3/5 years with after-fee returns
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