State Street's Health Care ETF Tops Invesco's on Yield and Returns

Both the State Street Health Care Select Sector SPDR ETF (NYSEMKT:XLV) and the Invesco S&P 500 Equal Weight Health Care ETF (NYSEMKT:RSPH) focus on the healthcare sector of the S&P 500, yet their internal mechanics create distinct investment profiles.

Investors choosing between them must decide if they prefer XLV’s stability and the momentum of the industry's largest players or RSPH’s broader, diversified exposure that comes with equal weighting across the entire sector.

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.

Cost is a primary differentiator here, as the State Street fund is significantly more affordable with an expense ratio of 0.08%. This lower fee structure, combined with a higher dividend yield of 1.7%, may appeal to income-focused investors looking for efficient compounding through the sector.

Performance & risk comparison

While both funds target the same segment of the market, their risk metrics have historically diverged. The State Street fund has shown more resilience with a lower maximum drawdown, and its total growth over five years has outpaced the Invesco fund by a significant margin.

What's inside

State Street Health Care Select Sector SPDR ETF allocates 100% of its portfolio to the healthcare sector, tracking a market-cap-weighted index. This strategy results in significant concentration at the top; its largest positions include Eli Lilly & Co. at 16%, Johnson & Johnson at 10%, and AbbVie at 7%. Launched in 1998, the fund holds 60 stocks and has a trailing-12-month dividend of $2.51 per share. Because it is weighted by size, its performance is heavily influenced by the biggest pharmaceutical and biotech names in the market.

In contrast, Invesco S&P 500 Equal Weight Health Care ETF tracks an equal-weight index, which provides a very different risk profile. Although it also holds about 60 stocks, it allocates roughly equal capital to each, meaning smaller companies have as much impact as the giants. Its top holdings include Humana at 3%, Centene at 2.8%, and Elevance Health at 2.3%. Launched in 2006, the fund is 98% healthcare with small positions in cash and other assets. It paid $0.22 per share over the trailing 12 months. This approach reduces concentration risk but may lead to different volatility patterns during market shifts.

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

What it means for investors

ETFs can generally be composed in two ways: equal weighting, where every holding represents approximately the same share of the fund, or market-cap weighting, in which the larger companies make up a higher proportion of the fund than smaller companies. Both have their upsides: equal-weight funds like RSPH offer a more balanced approach, and investors may be able to capitalize on the larger upside potential of smaller companies. Market-cap-weighted funds like XLV give investors more exposure to the larger, more stable companies, minimizing risk and potentially maximizing dividend returns.

Cost is a big consideration with these two funds. XLV charges much lower fees than RSPH, as well as a dividend yield that’s an entire percentage point higher. Investors who are focused on income may be more drawn to this fund. It’s also a bit more resilient, with a lower maximum drawdown over the past five years. As an added bonus, its total returns over the past one and five years are also higher.

Sarah Sidlow has positions in Johnson & Johnson. 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.