Fidelity (FHLC) vs. iShares (IXJ): Which Healthcare ETF Delivers Better Value?

Fidelity MSCI Health Care Index ETF (NYSEMKT:FHLC) offers a low-cost, domestically focused portfolio, whereas iShares Global Healthcare ETF (NYSEMKT:IXJ) provides broader geographic diversification for investors seeking exposure to international medical giants.

Healthcare remains a cornerstone for long-term investors due to aging demographics and constant medical breakthroughs. While domestic giants like Eli Lilly dominate both portfolios, the presence of European and Asian healthcare firms in one of these funds creates a distinct risk profile. Both funds exhibit betas well below 1.00, suggesting they may be less volatile than the broader market, which is typical for the defensive healthcare sector. This comparison looks at how geographic reach affects costs and performance.

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 Fidelity fund is notably more affordable, with an expense ratio of 0.08%, while the iShares fund charges a higher 0.40% due to its global scope. For long-term investors, this fee difference can significantly impact capital accumulation, though IXJ offers a slightly higher yield of 1.50% compared to FHLC’s 1.40%.

Performance & risk comparison

What's inside

The iShares fund provides a window into healthcare equities worldwide, with a portfolio comprising 98% healthcare stocks, 1% consumer defensive, and 1% cash. With 110 holdings, its largest positions include Eli Lilly at 10.56%, Johnson & Johnson at 6.75%, and AbbVie at 4.92%. Launched in 2001, the fund has a trailing-12-month dividend of $1.44 per share and offers a mix of established international pharmaceutical giants and domestic leaders.

In contrast, the Fidelity fund focuses entirely on the domestic market, allocating 100% to U.S. healthcare. It offers broader diversification by sheer number, holding 365 stocks. Its top holdings include Eli Lilly (13.81%), Johnson & Johnson (8.69%), and AbbVie (6.35%). Launched in 2013, the fund has paid $1.02 per share over the trailing 12 months. While it lacks the international exposure of its counterpart, it captures a wider swath of the U.S. industry, from biotech start-ups to managed care giants.

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Which healthcare ETF is the better buy?

While I really like that IXJ offers a decent amount of international healthcare exposure -- whereas FHLC is 100% U.S. stocks -- I just can’t justify paying five times the expenses for that added diversification. Furthermore, since 2013, FHLC has delivered annualized total returns of 10.6% versus IJX’s market of 8.7%, highlighting a rather lengthy period of outperformance for the more affordable ETF.

Considering the two ETFs have otherwise similar attributes -- 1.4% dividend yields, low betas, nearly identical asset bases, and five-year drawdowns -- I think focusing on keeping investing costs as low as possible is the winning play here. This is especially true considering the cheaper option has a long history of performing better.

That said -- and while both ETFs have the same top three holdings -- investors should note that LLY, JNJ, and ABBV stocks equal a somewhat spooky 29% of FHLC’s portfolio. This figure is only 22% for IXJ. Either way, you’ll have to be comfortable with those three stocks equalling a rather large allocation to either ETF. Ultimately, I could only look to buy FHLC, though, thanks to its cost leadership and impressive track record.

Josh Kohn-Lindquist has no position in any of the stocks mentioned. 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.