The State Street Health Care Select Sector SPDR ETF (NYSEMKT:XLV) provides concentrated exposure to blue-chip healthcare giants, while the Vanguard Health Care ETF (NYSEMKT:VHT) offers a wider reach including small- and mid-cap companies.
Healthcare remains a cornerstone of the American economy, and these two funds offer distinct ways to own it. While both seek to track the performance of the medical and wellness industries, the degree of diversification varies significantly between the two portfolios, impacting concentration risk and market-cap exposure.
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 as of the close of trading on August 8.
The State Street fund is nominally more affordable with an expense ratio of 0.08%, just one basis point below the Vanguard fund’s 0.09%. Both funds currently offer an identical 1.5% dividend yield, making management costs a primary differentiator.
Performance & risk comparison
What’s inside
The Vanguard Health Care ETF tracks a broad index of medical companies, providing exposure to 423 holdings. This breadth includes many small- and mid-sized firms that its competitor ignores, and its largest positions include Eli Lilly & Co (NYSE:LLY) at 14.2%, Johnson & Johnson (NYSE:JNJ) at 8.9%, and AbbVie Inc (NYSE:ABBV) at 6.6%. Launched in 2004, it is heavily weighted toward healthcare at 99%, with slight exposure to financial services, technology, and industrials. The Vanguard Health Care ETF has paid $4.72 per share over the trailing 12 months, which on its recent $309.02 share price works out to a 1.5% yield.
The State Street Health Care Select Sector SPDR ETF focuses strictly on the healthcare names within the S&P 500, holding only 60 stocks. Its largest positions include Eli Lilly & Co at 15.5%, Johnson & Johnson at 10.5%, and AbbVie Inc at 7.8%. Launched in 1998, it is currently all allocated to healthcare although at times it will have small amounts in related technology businesses. The State Street Health Care Select Sector SPDR ETF has paid $2.53 per share over the trailing 12 months, which on its recent $164.45 share price works out to a 1.5% yield.
For more guidance on ETF investing, check out the full guide at this link.
Which looks like the better buy?
Healthcare has been on a good run the past year, as a sector it is up around 30% the past 52 weeks. Both these funds are good ways to add this sector-specific exposure to your portfolio, but they have distinct differences investors should take into account to decide which one to buy.
Both ETFs provide good exposure to the sector and have some similarities beyond their healthcare focus. For one, both funds are heavily concentrated in their top 10 holdings, with the State Street fund, XLV, allocating about 60% of its assets to its top 10 holdings, while the Vanguard offering, VHT, allocates about 52% of its assets to its top 10 holdings. The top nine for each are identical in order of weighting, though the funds do have differences in how much each stock makes up in the portfolio. Their expenses and maximum drawdowns are also nearly identical.
There are notable differences, too. XLV is heavily in large-cap stocks, with 78% of its assets in large caps, 21% in mid caps, and just 2% in small caps (the total is more than 100% due to rounding).VHT is more style diverse, with 22% of its assets in mid cap stocks and 12% in small caps.
The true differecce-maker is performance. The Vanguard ETF, VHT, beats State Street’s XLV in most time frames. In adidtion to the superior 1-year return noted above, VHT has returned an annualized 8.9%, 5.1%, and 9.9% over the 3-, 5-, and 10-year time-frames, while XLV has returned 8.4%, 5.9%, and 9.8%, beating VHT only over the past five years.
Performance and the fact that a more concentrated portfolio like XLV’s should inherently bring more risk makes the Vanguard Health Care ETF the choice for long-term investors.
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Brendan Coffey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Vanguard Health Care ETF vs State Street XLV: Which ETF Is the Better Buy for Investors in 2026? was originally published by The Motley Fool