The State Street Health Care Select Sector SPDR ETF (NYSEMKT:XLV) provides broad exposure to the S&P 500 healthcare sector, whereas the Invesco Nasdaq Biotechnology ETF (NASDAQ:IBBQ) offers a targeted focus on biotechnology and pharmaceutical companies listed on the Nasdaq.
Investors looking for healthcare exposure must often choose between the stability of a broad, diversified sector fund versus the higher upside — and higher volatility — of a narrower, growth-oriented fund. This comparison examines whether XLV’s lower costs and track record outweigh the concentrated risk-reward profile of IBBQ.
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-year return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
XLV is the less expensive option, with an expense ratio of 0.08% compared to IBBQ’s 0.19%. XLV also pays a higher dividend yield of 1.60% versus IBBQ’s 0.79%.
Performance & risk comparison
This is where the two funds tell very different stories. IBBQ’s 45.5% one-year return dwarfs what a broad healthcare fund like XLV typically delivers, but that performance has come with meaningfully larger swings along the way. A fund concentrated in biotech — an industry driven by binary events like FDA approvals, clinical trial results, and patent cliffs — will generally see bigger peaks and valleys than a diversified portfolio that spans pharma giants, insurers, and medical device makers. Investors chasing IBBQ’s recent returns should go in with eyes wide open to the drawdown risk attached to that upside.
What’s inside
Launched in 1998, XLV tracks the Health Care Select Sector Index, giving investors broad exposure to the healthcare industry within the S&P 500. The fund holds 60 stocks spanning pharmaceuticals, medical equipment, healthcare providers, and life sciences tools. Its largest positions include Eli Lilly (NYSE:LLY) at 16.5%, Johnson & Johnson (NYSE:JNJ) at 10.6%, and AbbVie (NYSE:ABBV) at 7.7%.
IBBQ tracks the Nasdaq Biotechnology Index, offering concentrated exposure to biotech and pharma companies trading on the Nasdaq. It holds 251 stocks, led by Vertex Pharmaceuticals (NASDAQ:VRTX) at 8.1%, Amgen (NASDAQ:AMGN) at 7.9%, and Gilead Sciences (NASDAQ:GILD) at 6.9%. IBBQ was launched in 2021.
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What this means for investors
This comparison boils down to a classic risk-versus-stability trade-off.
XLV’s 60-stock portfolio spans the entire healthcare industry — including pharma giants, medical device makers, insurers, and life sciences tool providers. IBBQ, by contrast, is a purer bet on biotech and pharma innovation, where a single clinical trial result or FDA decision can move a stock (and by extension the fund) sharply in either direction. That’s typically why a fund like IBBQ can post a 45.5% one-year gain while also experiencing more than twice the five-year maximum drawdown of XLV — those big swings cut both ways.
It’s also worth noting that “diversified” doesn’t mean there’s no concentration risk here — both funds lean more heavily on their top names than investors might expect. XLV’s top three holdings (Eli Lilly, Johnson & Johnson, and AbbVie) make up nearly 35% of the fund, so despite holding 60 stocks, its performance is still disproportionately tied to a handful of pharma giants. IBBQ is comparatively more balanced at the top, with its top three names (Amgen, Vertex Pharmaceuticals, and Gilead Sciences) accounting for closer to 23% of assets — and its portfolio is spread across 251 holdings. In other words, XLV’s stability comes largely from the steadiness of its biggest constituents rather than from even weighting, while IBBQ’s risk is driven more by its sector-wide exposure to volatile, event-driven biotech names than by any single company dominating the fund.
Neither approach is objectively superior. Investors who want core healthcare exposure with a steadier ride and a larger dividend yield may prefer XLV — but be aware that a handful of mega-cap pharma names are driving an outsize portion of the fund’s returns. IBBQ is best suited to those comfortable with more volatility, and who believe biotech innovation — including new drug approvals, M&A activity, and gene-editing breakthroughs — has room to keep outperforming.
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Andy Gould has positions in AbbVie and Vertex Pharmaceuticals. The Motley Fool has positions in and recommends AbbVie, Amgen, Eli Lilly, Gilead Sciences, and Vertex Pharmaceuticals. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
XLV vs. IBBQ: Is Broad Healthcare Exposure or Biotech Growth the Better ETF Buy? was originally published by The Motley Fool
