Choosing among healthcare funds often comes down to the desired geographic scope and the entry price.
The State Street Health Care Select Sector SPDR ETF (NYSEMKT:XLV) provides low-cost access to domestic healthcare leaders, while the iShares Global Healthcare ETF (NYSEMKT:IXJ) offers broader geographic diversification, making the choice a trade-off between domestic efficiency and global breadth.
Snapshot (cost & size)
Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
XLV is significantly more affordable in terms of fees, with a much lower expense ratio than IXJ. Payouts are similar, with a small dividend yield gap of 0.10 percentage points.
Performance & risk comparison
What’s inside
IXJ provides broader exposure by tracking 110 global equities, including pharmaceutical, biotech, and medical device companies. Its largest positions include Eli Lilly(NYSE:LLY), Johnson & Johnson(NYSE:JNJ), and AbbVie(NYSE:ABBV). It was launched in 2001 and has paid $1.44 per share in dividends over the trailing 12 months.
XLV offers a more concentrated portfolio, with just 60 stocks from the healthcare segment of the S&P 500. Its largest holdings match those of IXJ, but with slightly larger concentrations. It was launched in 1998 and has paid $2.53 per share in dividends over the trailing 12 months.
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Which looks like the better buy
XLV and IXJ both offer exposure to a wide array of healthcare stocks, but they differ primarily in their focus and diversification.
While XLV holds only U.S.-based stocks listed in the S&P 500, IXJ is a global fund. Around 70% of IXJ’s holdings are U.S.-based, with its next-largest allocations to stocks from Switzerland, the U.K, and Japan. IXJ also holds nearly twice as many stocks as XLV, offering greater overall diversification.
The two ETFs share the same top three holdings, but their concentration levels could lead to differences in performance. Eli Lilly, Johnson & Johnson, and AbbVie make up close to 22% of IXJ’s portfolio, compared to around 33% for XLV.
A narrower portfolio can sometimes experience greater price swings during periods of volatility, but in some cases, it can also outperform more diversified funds. This appears to be the case with XLV, as it’s outperformed IXJ in both one- and five-year total returns.
Fees are another factor to consider. IXJ charges a 0.38% expense ratio, meaning investors can expect to pay $38 per year in fees for every $10,000 invested. XLV charges just 0.08%, amounting to $8 per year for every $10,000. For long-term investors with large account balances, that difference can add up quickly.
There isn’t necessarily a right or wrong approach to these two ETFs, as the right one for you depends on your preferences. IXJ is broader and more diversified, offering exposure to a wider array of global healthcare stocks. XLV is more targeted, with less diversification but more lucrative recent returns.
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Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie and Eli Lilly. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
State Street XLV vs. iShares IXJ: Here’s How These Healthcare ETFs Stack Up for Investors was originally published by The Motley Fool
