Investors choosing between iShares U.S. Healthcare ETF (NYSEMKT:IYH) and VanEck Biotech ETF (NASDAQ:BBH) may weigh the broader, lower-volatility healthcare exposure of IYH against the concentrated, high-growth biotechnology focus of BBH.
Investors choosing between the biotechnology subsector and the broader healthcare industry often weigh high growth potential against portfolio stability. While BBH focuses on 25 biotech firms, IYH includes 100 companies, like pharmaceutical giants and equipment makers. This comparison examines how these different strategies impact costs, risks, and yields.
Snapshot (cost & size)
Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
BBH is slightly more affordable with a 0.35% expense ratio compared to 0.38% for IYH. However, IYH provides a more significant payout, offering a 1.20% dividend yield compared to 0.50% for the biotech-focused fund.
Performance & risk comparison
What’s inside
The iShares U.S. Healthcare ETF (IYH) provides broad exposure across the healthcare sector, which accounts for 100.00% of its portfolio. Its largest positions include Eli Lilly (NYSE:LLY) at 15.96%, Johnson & Johnson (NYSE:JNJ) at 10.42%, and Abbvie Inc (NYSE:ABBV) at 7.30% among its 100 total holdings. The fund was launched in 2000. iShares U.S. Healthcare ETF has paid $0.80 per share over the trailing 12 months, which, at its recent ~$68.56 share price, yields 1.20%.
The VanEck Biotech ETF (BBH) focuses on 25 companies involved in genetic research and diagnostics, with 100.00% of its portfolio allocated to the healthcare sector. Top holdings include Amgen Inc (NASDAQ:AMGN) at 14.84%, Gilead Sciences Inc (NASDAQ:GILD) at 13.21%, and Vertex Pharmaceuticals Inc (NASDAQ:VRTX) at 9.16%. The fund was launched in 2011. VanEck Biotech ETF has paid $0.96 per share over the trailing 12 months, which, at its recent ~$209.28 share price, yields 0.50%.
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Which looks like the better buy
The iShares U.S. Healthcare ETF (IYH) and the VanEck Biotech ETF (BBH) are both healthcare-focused exchange-traded funds (ETFs). Here’s how they compare to one another.
First, let’s take a closer look at IYH. This fund is centered on the U.S. healthcare sector. Indeed, the fund’s high exposure to major healthcare giants is a double-edged sword. Fully 45% of its total exposure is concentrated in just five stocks: Eli Lilly (16%), Johnson & Johnson (10%), AbbVie (7%), UnitedHealth Group (6%), and Merck (5%). As a result, this fund lacks true diversification, despite holding around 100 stocks. Much of its performance will simply come from the rise of the healthcare giants. Turning to performance, the fund has delivered a total return of 153% over the last decade, equating to a compound annual growth rate (CAGR) of 9.7%. By contrast, the S&P 500 has delivered a total return of 317% over this same period, with a CAGR of 15.3%. This total return includes the impact of the fund’s modest 1.2% dividend yield.
Then there’s BBH. This fund differs from IYH in its sector focus. BBH is a biotech ETF. The fund holds only 25 positions, with significant exposure to Amgen, Gilead, Vertex, Regeneron, and Revolution Medicines. Biotech stocks can often be volatile, given their reliance on clinical-stage therapies and the results of the governmental approval process. Over the long term, BBH has underperformed IYH. Since 2016, the fund has delivered a total return of 98%, equating to a CAGR of 7.1%. This total return includes the fund’s dividend yield, currently 0.5%.
Both funds offer investors exposure to the healthcare sector, albeit in very different forms. IYH is a fund that will often track the performance of healthcare giants, while BBH offers greater upside (and volatility) given its holdings in the biotech sector. As for fees, both funds have expense ratios that are average at best. BBH is slightly more affordable at 0.35%, versus 0.38% for IYH. To sum up, IYH may be the preferred choice for investors seeking healthcare-only exposure, though alternatives offer greater diversification at a lower cost.
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Jake Lerch has positions in Merck. The Motley Fool has positions in and recommends AbbVie, Amgen, Eli Lilly, Gilead Sciences, Merck, Regeneron Pharmaceuticals, and Vertex Pharmaceuticals. The Motley Fool recommends Johnson & Johnson and UnitedHealth Group. The Motley Fool has a disclosure policy.
Which is the Better Choice for Healthcare Investors? IYH or BBH? was originally published by The Motley Fool
