Vanguard (VHT) vs VanEck (PPH): Which Healthcare ETF Is the Better Buy?

Vanguard Health Care ETF (NYSEMKT:VHT) provides broad-spectrum medical sector exposure at a low cost, while VanEck Pharmaceutical ETF (NASDAQ:PPH) offers concentrated exposure to global pharmaceutical giants with a higher yield.

Investors seeking defensive exposure often turn to the medical sector, but choosing between a broad-market basket and a specialized industry play can significantly impact portfolio performance. This comparison analyzes a diversified giant with a concentrated pharmaceutical fund to help clarify which strategy aligns with specific income and growth objectives.

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.

The Vanguard fund is the more affordable option by a wide margin, charging 0.09% compared to 0.36% for the VanEck fund. While both provide regular distributions to shareholders, income-focused investors may prefer the higher 2.0% trailing-12-month yield offered by the VanEck fund.

Performance & risk comparison

What's inside

The Vanguard Health Care ETF (VHT) aims to replicate the performance of a benchmark index measuring the investment return of stocks in the healthcare sector. It operates under a passive management style, generally utilizing a full replication strategy but reserving the right to use sampling to meet regulatory requirements. Launched in 2004, it holds 411 stocks across the entire industry, including medical equipment and health services. Its largest positions include Eli Lilly at 14.01%, Johnson & Johnson at 8.45%, and AbbVie at 6.08%. The fund paid $4.70 per share over the trailing 12 months and maintains 100% healthcare exposure.

Conversely, VanEck Pharmaceutical ETF (PPH) seeks to match the price and income returns of the MVIS U.S. Listed Pharmaceutical 25 Index. The index is constructed to reflect the comprehensive performance of businesses operating within the pharmaceutical sector, covering drug discovery, manufacturing, and distribution. Launched in 2011, it is significantly more concentrated, holding only 26 companies. Its largest positions include Eli Lilly at 22.53%, Novartis at 10.55%, and Merck at 9.37%. It has a trailing-12-month dividend of $2.15 per share and, like its counterpart, maintains 100% exposure to the healthcare sector.

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

Which healthcare ETF is the better buy?

Since their public market debuts, VHT has compounded its total returns at 9.6% annually, whereas PPH has compounded at 6.4%. However, over the last five years, PPH’s returns have soared past VHT’s as Eli Lilly (a massive 22.5% of PPH’s portfolio) has seen its share price quintuple, thanks to its breakthrough GLP-1 drugs.

That said, and while this run is impressive, I would only be interested in buying VHT for a number of reasons. First, Vanguard’s VHT ETF has a four times cheaper expense ratio than PPH, living up to the low-cost Vanguard norm. While the VanEck PPH ETF makes up for this with its higher dividend yield, its long-term total returns have been weighed down by its higher fees.

Second, PPH’s top three holdings equal nearly 50% of its portfolio -- compared to 29% for VHT. This creates some pretty heavy concentration risk, in my opinion. While both ETFs have ample exposure to Eli Lilly, the fact that VHT holds over 400 healthcare stocks, compared to PPH’s 26, makes me much more comfortable holding VHT for a decade or more.

Lastly, I prefer that VHT covers the entire healthcare industry rather than just the pharma niche. That said, while I see that as a feature and not a bug, it might be the opposite for other investors who believe a secular trend could push pharma stocks (specifically) higher, making it a more apt ETF.

Ultimately, VHT offers investors a superior ETF structure with its lower expense ratio, smaller drawdown, deeper diversification, and stronger long-term returns, so it’d make for a better “set it and forget it,” steady-Eddie investment for my portfolio.

Josh Kohn-Lindquist has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie, Eli Lilly, and Merck. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.