1 No-Brainer Healthcare Vanguard ETF to Buy Right Now for Less Than $1,000
Key Points
Expected increased capital spending and the implementation of artificial intelligence (AI) are structural tailwinds for healthcare stocks today.
Spending is expected to be 20% of GDP by 2032.
The Vanguard Healthcare ETF (VHT) is my favorite ETF in this sector due to its expansive coverage in companies of all sizes.
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Healthcare is a sector that's about as durable as they come. Everybody continually needs medicine, doctor's visits, and medical equipment. That makes it a sector with steady, sustained demand regardless of the economic environment.
It's not exciting though, which is why the sector has underperformed lately. No one wants boring when artificial intelligence (AI) stocks are rocketing higher.
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But conditions are changing. The economy is slowing, recession fear is growing, and the geopolitical backdrop adds another wild card to the mix.
If you've got cash sitting on the sidelines right now, there's a compelling case to put it to work in the Vanguard Healthcare ETF (NYSEMKT: VHT), one of my favorite funds in this space.
Image source: Getty Images.
Key takeaways
- VHT includes roughly 400 stocks from an all-cap U.S. stock universe, making it ideal for broad sector coverage.
- Healthcare has lagged the S&P 500 over the past several years as investors have focused heavily on tech and growth stocks.
- The aging of America and integration of AI into the sector remain key long-term catalysts.
- Healthcare is traditionally one of the best-performing sectors during market downturns.
Why healthcare makes sense right now
From a structural standpoint, the healthcare sector has one of the most resilient demand profiles in the global economy. The need for medical care, prescription drugs, and health services is constant. In an economy where consumer spending capacity is shrinking, growth is slowing, and inflation is rising, the kind of profile makes sense as a defensive component to a portfolio.
The sector is also benefiting from increased capital spending. Many hospitals and facilities are in the very early stages of weaving AI into their workflows. Medical equipment and facilities need upgrading. The latest medical equipment needs to be purchased and implemented.
As a result, healthcare spending is projected to increase to $7.7 trillion by 2032, which would amount to nearly 20% of gross domestic product (GDP).
What makes VHT better than other healthcare ETFs?
The natural comparison for the Vanguard Healthcare ETF is the State Street Health Care Select Sector SPDR ETF (NYSEMKT: XLV).
| Metric | VHT | XLV |
|---|---|---|
| Expense ratio | 0.09% | 0.08% |
| Number of holdings | 410 | 59 |
| Market cap coverage | Large, mid, small | Mostly large |
| One-year return | 14% | 10.9% |
| Five-year return (avg.) | 5.2% | 6.4% |
| Dividend yield (approx.) | 1.4% | 1.7% |
| AUM | $17.7 billion | $38.5 billion |
| Best use case | Broad sector coverage | Large-cap focus |
Sources: Vanguard, State Street
When investing in a more narrow, thematic sector, I prefer something more concentrated to make it as pure play as possible. When investing in a core economic sector, however, I prefer broad and diversified investments.
The Vanguard Healthcare ETF targets companies of all sizes, not just the big ones. Longer-term performance has lagged that of the State Street Health Care Select Sector SPDR ETF, but that's a byproduct of the market's recent focus on large caps. Over time, I'd expect to see the small-cap portion of the Vanguard fund's portfolio to help enhance returns.
Given the undervalued nature of healthcare sector stocks and the slowing U.S. economy, this ETF makes a lot of sense for your next investment.
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David Dierking has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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