Which ETF Is Healthier for Your Portfolio: Vanguard Health Care ETF or iShares Pharmaceuticals ETF?

Vanguard Health Care ETF (NYSEMKT:VHT) provides broad-based sector coverage with a significantly lower expense ratio, while iShares U.S. Pharmaceuticals ETF (NYSEMKT:IHE) offers concentrated access to domestic drug companies.

Both ETFs provide targeted healthcare exposure, but they differ significantly in scope and cost. While one drills down into the specific mechanics of drug development and distribution, the other casts a wider net across the entire medical ecosystem to capture providers, services, and equipment.

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 July 20.

Vanguard Health Care ETF is more affordable with an expense ratio of 0.09%, which is significantly lower than the 0.38% fee charged by iShares U.S. Pharmaceuticals ETF. The yield difference between these two funds is minimal.

Performance & risk comparison

What's inside

The Vanguard fund tracks a wide range of medical firms, holding 411 stocks, nearly all of which are in the healthcare sector. The fund’s largest positions include Eli Lilly & Co (NYSE:LLY) at 14.2%, Johnson & Johnson (NYSE:JNJ) at 8.9%, and AbbVie Inc (NYSE:ABBV) at 6.5%. It was launched in 2004. Vanguard Health Care ETF has paid $4.72 per share over the trailing 12 months, which on its recent ~$299.49 share price works out to a 1.60% yield.

iShares U.S. Pharmaceuticals ETF concentrates specifically on domestic companies that manufacture and distribute drugs. Its largest positions include Johnson & Johnson at 22.4%, Eli Lilly at 22.3%, and Merck & Co (NYSE:MRK) at 4.5%. It holds 56 positions, resulting in much higher concentration among its top holdings. 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 ~$98.85 share price works out to a 1.50% yield.

Which fund is the better buy?

Given that healthcare has been trending positively over the past 52 weeks, it makes sense to explore adding one of these ETFs to your portfolio. The sector has gained around 25% the past 52 weeks. Both of these funds are good ways to add healthcare sector-specific exposure to your portfolio. They are similar in some ways, such as being almost completely invested in U.S. stocks and each have notable percentages of their holdings dedicated to both mid cap and small cap securities.

Yet, the Vanguard fund, VHT, and the iShares offering. IHE, have distinct differences that investors should take into account when deciding which one to buy.

The primary difference is performance. Here, IHE has been performing much better than VHT in recent years. IHE is up 17.5% year-to-date compared to 4.7% for VHT. Over the 3-year and 5-year look-backs, IHE beats VHT 20.4% to 8.6%, and 11.8% to 5.4%, respectively. Over the 10-year time frame, however, VHT has produced annualized returns of 10.2% compared to 9.1% for IHE.

With better performance in recent years and a lower maximum drawdown, the iShares Pharmaceuticals ETF, IHE, is the better buy for 2026.

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

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