Vanguard Health Care ETF Outperforms VanEck Biotech on Returns, Yield, and Fees

VanEck Biotech ETF (NASDAQ:BBH) offers concentrated exposure to the biotech industry, whereas Vanguard Health Care ETF (NYSEMKT:VHT) provides broad, low-cost diversification across the entire healthcare sector.

Investors looking to capitalize on medical breakthroughs often choose between a narrow biotechnology focus or broad healthcare exposure. This comparison analyzes how a concentrated sector play differs from a diversified industry-wide approach in terms of cost, volatility, and long-term results.

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.

VHT is more affordable than BBH, with an expense ratio of 0.09% compared to 0.35%. The Vanguard fund also offers a higher payout, providing a 1.10-percentage-point yield advantage for income-focused investors.

Performance & risk comparison

What's inside

Vanguard Health Care ETF focuses on broad healthcare exposure, with 99% of its portfolio in that sector across 411 holdings. Its largest positions include Eli Lilly & Co (NYSE:LLY) at 14.19%, Johnson & Johnson (NYSE:JNJ) at 8.89%, and AbbVie Inc (NYSE:ABBV) at 6.56%. The fund was launched in 2004. Vanguard Health Care ETF has paid $4.72 per share over the trailing 12 months, which, at its recent ~$303.31 share price, yields 1.6%.

VanEck Biotech ETF provides pure biotech exposure with a concentrated portfolio of 25 holdings. Its top holdings include Amgen Inc (NASDAQ:AMGN) at 15.58%, Gilead Sciences Inc (NASDAQ:GILD) at 13.19%, and Vertex Pharmaceuticals Inc (NASDAQ:VRTX) at 8.64%. The fund was launched in 2011. VanEck Biotech ETF has paid $0.96 per share over the trailing 12 months, which, at its recent ~$204.03 share price, yields 0.5%.

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Which is the better buy

The VanEck Biotech ETF (BBH) and the Vanguard Health Care ETF (VHT) are both healthcare exchange-traded funds (ETFs). Yet, while these two ETFs cover the same general sector of the stock market, their strategic aims are quite different. Investors considering these funds should understand their nuances before adding them to their portfolio.

First, there’s VHT. This fund has a very extensive portfolio, with over 400 healthcare stocks. However, even with so many holdings, the fund appears top-heavy, with just three stocks (Eli Lilly, Johnson & Johnson, and Abbvie) comprising 30% of its overall exposure. As for performance, VHT has delivered a total return of 159% over the last 10 years, with a compound annual growth rate (CAGR) of 10.0%. The fund’s expense ratio is very affordable at 0.09%. Its dividend yield of 1.6% is solid but average for this type of ETF.

Then there’s BBH. This fund is focused on the biotech sub-sector. BBH holds only 25 stocks, giving it greater potential for big returns but also greater downside risk. This is particularly important given the volatile nature of biotech stocks, which often rise and fall based on clinical results or the outcome of the drug approval process. Turning to performance, BBH has generated a total return of 87% over the last 10 years, with a CAGR of 6.5%. As for fees, BBH has an expense ratio of 0.35%. Moreover, its dividend yield is only 0.5%.

In summary, VHT is the traditional choice for those seeking healthcare sector exposure. It combines low fees, steady performance, and a solid dividend yield. As for BBH, it could play a role for more aggressive investors seeking the upside of the biotech sector. But this volatility comes with a trade-off — higher fees, smaller dividend payments, and a track record of underperformance versus the broader healthcare sector.

Jake Lerch has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie, Amgen, Eli Lilly, Gilead Sciences, and Vertex Pharmaceuticals. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.