FHLC vs. IYH: Which Healthcare ETF Is the Better Buy in 2026?

The Fidelity MSCI Health Care Index ETF (NYSEMKT:FHLC) offers a significantly lower expense ratio and broader diversification than the iShares U.S. Healthcare ETF (NYSEMKT:IYH), which may appeal to cost-conscious investors seeking wide sector exposure.

These two healthcare ETFs provide exposure to the broad American medical sector, covering pharmaceutical giants, biotechnology innovators, and medical equipment providers. However, the funds differ significantly in their indexing methodology and stock selection. This article examines how those differences affect their diversification, yield potential, and overall cost structure.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-year return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

FHLC is significantly cheaper, charging an expense ratio of 0.08% annually compared to 0.38% for IYH. Compounded over many years, this 0.30 percentage point difference can make a meaningful impact on returns. Additionally, FHLC currently offers a slightly higher dividend yield of 1.40% compared to IYH’s 1.28%.

Performance & risk comparison

What's inside

Launched in 2013, the Fidelity MSCI Health Care Index ETF (FHLC) provides broad exposure to the health care sector with 338 holdings. Its largest positions include Eli Lilly (NYSE:LLY) at 14.0%, Johnson & Johnson (NYSE:JNJ) at 8.6%, and AbbVie (NYSE:ABBV) at 6.1%. By tracking the MSCI USA IMI Health Care Index, it captures a wider array of small- and mid-cap companies that are often excluded from narrower healthcare benchmarks.

The iShares U.S. Healthcare ETF (IYH) maintains a more concentrated focus with 101 holdings, primarily targeting large-cap blue chips. Its largest positions include the same three stocks -- with Eli Lilly at 15.8%, Johnson & Johnson at 9.7%, and AbbVie at 6.9%. The fund was launched in 2000. Because it holds fewer stocks, IYH can be more sensitive to the performance of its top holdings.

For more guidance on ETF investing, check out the full guide at this link.

What this means for investors

Healthcare has long served as a defensive anchor in investor portfolios -- and for good reason. The sector tends to hold up relatively well during market turbulence, since demand for drugs, medical devices, and healthcare services doesn't evaporate when the economy slows. For investors looking to add or maintain that kind of stability, both FHLC and IYH are suitable options. The core question is how much diversification you want, and how much you're willing to pay for it.

FHLC's case is fairly straightforward: 338 holdings across the full healthcare spectrum -- large-cap stalwarts alongside smaller biotech and med-tech players -- for just 0.08% per year. That's one of the lowest expense ratios in the sector ETF space. IYH, by comparison, costs 0.38% annually, nearly five times as much, in exchange for a tighter, blue-chip-focused portfolio of 101 names. Over a 10- or 20-year investing horizon, FHLC’s fee advantage can compound meaningfully.

That said, concentration isn't always a liability. IYH's heavier weights in its top holdings -- Eli Lilly, Johnson & Johnson, and AbbVie -- mean it can outperform when those names run. The two funds have historically shown similar risk profiles, with nearly identical maximum drawdowns over five years.

For most long-term investors, FHLC's combination of lower cost, broader exposure, and slightly higher yield makes it a compelling option for healthcare sector coverage. IYH may appeal to those who want a more targeted bet on large-cap pharma leaders -- though they'll pay a premium for that focus.

Andy Gould has positions in AbbVie. 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.