IHE vs IXJ: Which Popular Healthcare ETF Is the Better Buy for Investors?

Investors comparing the iShares U.S. Pharmaceuticals ETF (NYSEMKT:IHE) and the iShares Global Healthcare ETF (NYSEMKT:IXJ) must choose between concentrated U.S. pharmaceutical industry exposure and a broader, global healthcare strategy.

Both funds offer targeted access to the healthcare sector, yet they take fundamentally different geographic and industry approaches. While IHE focuses exclusively on the domestic drug manufacturing and distribution pipeline, IXJ captures a wider array of global companies, including medical device makers, biotechnology firms, and healthcare services across international markets.

Snapshot (cost & size)

The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

While the 0.02 percentage point difference in expense ratios is minimal, investors may consider how these fees impact long-term compounding. Both funds currently offer a yield near 1.50%, making the annual cost difference a primary differentiator for long-term income seekers who prioritize lower fees.

Performance & risk comparison

What's inside

With $4.1 billion in assets under management (AUM), iShares Global Healthcare ETF offers higher liquidity than its peer. Largest positions include Eli Lilly (NYSE:LLY) at 10.61%, Johnson & Johnson (NYSE:JNJ) at 6.89%, and AbbVie (NYSE:ABBV) at 5.00%. The portfolio provides 100.00% exposure to the healthcare sector across 110 different holdings. The fund was launched in 2001. iShares Global Healthcare ETF has paid $1.44 per share over the trailing 12 months, which on its recent ~$99.67 share price works out to a 1.44% yield.

Managing $1.4 billion in assets under management (AUM), iShares U.S. Pharmaceuticals ETF is smaller but highly specialized. In comparison, the fund is more concentrated, holding only 56 stocks. Top holdings include Johnson & Johnson at 21.81%, Eli Lilly at 21.44%, and Bristol Myers Squibb (NYSE:BMY) at 4.45%. This fund also maintains 100.00% healthcare exposure but focuses exclusively on the U.S. pharmaceutical industry. It was launched in 2006. iShares U.S. Pharmaceuticals ETF has paid $1.47 per share over the trailing 12 months, which, on its recent ~$100.13 share price, works out to a 1.47% yield.

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

What it means for investors

Investors looking to diversify their holdings probably want to avoid the iShares U.S. Pharmaceuticals ETF. The benchmark index it follows, the Dow Jones U.S. Select Pharmaceuticals Index, is heavily weighted toward its top two holdings, Johnson & Johnson and Eli Lilly. They make up 21.8% and 21.4% of the overall portfolio at the moment.

The iShares Global Healthcare ETF offers greater diversification across geography and industries. Two of its top ten holdings don’t sell pharmaceuticals. Plus, its second-largest holding, Johnson & Johnson, still receives more than a third of its total income from the sale of medical devices.

While the IHE ETF has outperformed in recent years, its outsized gains are largely due to the success of weight-loss drugs that target GLP-1 receptors in recent years.

With exposure to insurance companies and medical technology manufacturers, the IXJ index is less likely to underperform due to a single issue, such as competition with lower-cost biosimilar versions of popular GLP-1 treatments.

Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie, Bristol Myers Squibb, and Eli Lilly. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.