IXJ vs. RSPH: Which Healthcare ETF Is the Better Buy?

Investors choosing between the iShares Global Healthcare ETF (NYSEMKT:IXJ) and the Invesco S&P 500 Equal Weight Health Care ETF (NYSEMKT:RSPH) need to weigh the stability of cap-weighted global giants against an equal-weighted, U.S.-only strategy.

While both funds target the same sector, they take very different approaches. RSPH’s equal-weight strategy means every one of its holdings has a roughly equal allocation in its portfolio. IXJ, by contrast, casts a wider net globally and uses traditional market-cap weighting, which favors the largest pharmaceutical companies.

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-year return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The two funds' expense ratios are identical at 0.4%. However, IXJ offers a notably higher dividend for income-seeking investors, with a yield more than double RSPH’s.

Performance & risk comparison

RSPH carries a more aggressive risk profile, with a higher beta and a deeper five-year maximum drawdown than IXJ. That's consistent with its structure -- by giving equal weight to smaller, faster-growing healthcare names, the fund becomes more sensitive to swings in those stocks, for better or worse.

What's inside

Launched in 2001, IXJ provides exposure to a diversified basket of global healthcare equities spanning pharmaceuticals, biotech, and medical devices. The fund holds 110 securities, and its cap-weighted approach results in meaningful concentration at the top. Its largest positions include Eli Lilly and Co. (NYSE:LLY) at 10.9%, Johnson & Johnson (NYSE:JNJ) at 7.0%, and Abbvie (NYSE:ABBV) at 5.1%.

RSPH tracks an index that assigns identical weight to every healthcare company in the S&P 500, reducing the influence of mega-cap giants and increasing the fund's sensitivity to smaller, high-growth names. It holds 60 securities, with top positions in Moderna (NASDAQ:MRNA) at 2.5%, Bio-Techne Corp. (NASDAQ:TECH) at 2.2%, and Charles River Laboratories International (NYSE:CRL) at 2.0%. Those weights aren't perfectly even because the index only resets to equal weight at each quarterly rebalance -- stocks that outperform their peers drift to a slightly higher weight, and laggards drift lower, until the next reset. RSPH was launched in 2006.

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What this means for investors

As with most ETF comparisons, the best choice here really comes down to what role you want a healthcare ETF to play in your portfolio. IXJ behaves more like a defensive, income-generating fund. Its cap-weighted structure concentrates money in established drugmakers like Eli Lilly, Johnson & Johnson, and AbbVie -- companies with steady cash flows, established products, and a long history of paying dividends. That's fairly typical of global healthcare funds, which tend to gravitate toward the biggest, most stable names by design.

RSPH takes a different tack. By weighting every S&P 500 healthcare stock equally, it hands more influence to smaller, faster-growing companies like Moderna and Bio-Techne -- names with more room to run, but also more room to fall, as reflected in the fund's higher beta and deeper five-year maximum drawdown.

Neither of these approaches is inherently better. These ETFs were simply built for different goals. Retirees or conservative investors leaning on dividend income may find IXJ's steadier, higher-dividend profile more appealing. Investors willing to stomach more volatility in exchange for greater potential upside from smaller, growth-oriented healthcare names may prefer RSPH.

Andy Gould has positions in AbbVie and Moderna. The Motley Fool has positions in and recommends AbbVie, Eli Lilly, and Moderna. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.