Better Healthcare Sector ETF: Vanguard's Broad VHT vs. Invesco's Biotechnology-Focused IBBQ

The Vanguard Health Care ETF (NYSEMKT:VHT) offers broad sector exposure and lower costs, while the Invesco Nasdaq Biotechnology ETF (NASDAQ:IBBQ) provides a concentrated, higher-volatility play on biotech innovation and pharmaceutical research.

Selecting a healthcare ETF requires a choice between broad sector coverage and concentrated sub-industry focus. This comparison examines how a diversified giant like the Vanguard fund measures up against a more specialized biotech fund. Investors often use these vehicles to capture medical innovation, but the risk profiles differ based on the mix of stable pharmaceutical giants and volatile biotech firms.

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.

Costs are a primary differentiator here, as the Vanguard fund operates with an ultra-low 0.09% expense ratio, making it more affordable than the 0.19% charged by the Invesco fund. Additionally, the broad healthcare exposure provides a higher yield; the Vanguard fund offers a 1.6% trailing-12-month payout, doubling the 0.8% yield provided by its biotech-focused peer.

Performance & risk comparison

What's inside

The Vanguard Health Care ETF employs a passive management style to replicate a benchmark of healthcare equities, primarily using a full replication strategy. Its largest positions include Eli Lilly (NYSE:LLY) at 14.19%, Johnson & Johnson (NYSE:JNJ) at 8.89%, and AbbVie (NYSE:ABBV) at 6.56%. The portfolio includes 411 holdings, spanning medical services, equipment, and health technology. It was launched in 2004. The Vanguard Health Care ETF has paid $4.72 per share over the trailing 12 months, which on its recent ~$303.31 share price works out to a 1.6% yield.

The Invesco Nasdaq Biotechnology ETF tracks the Nasdaq Biotechnology Index, allocating at least 90% of its capital to companies in the benchmark. Its largest positions include Amgen (NASDAQ:AMGN) at 8.13%, Vertex Pharmaceuticals (NASDAQ:VRTX) at 7.90%, and Gilead Sciences (NASDAQ:GILD) at 7.26%. The fund holds 251 securities and undergoes a yearly composition review every December. It was launched in 2021. The Invesco Nasdaq Biotechnology ETF has paid $0.26 per share over the trailing 12 months, which on its recent ~$32.46 share price works out to a 0.8% yield.

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What this means for investors

For those seeking to invest in the healthcare industry, the Vanguard Health Care ETF (VHT) and Invesco Nasdaq Biotechnology ETF (IBBQ) offer different approaches to doing so. Choosing between them comes down to investment goals and risk tolerance.

IBBQ is for investors pursuing outsized returns in exchange for elevated risk. This is illustrated in the fund’s delivery of a superior one-year return of nearly 44%, but a substantially larger five-year max drawdown of 38%. It’s the kind of fund where you may want to jump in then exit once you’ve made a good return, rather than hold for the long term. However, its AUM of $75.3 million offers far less liquidity than VHT, making it less appealing for active traders.

VHT is for those who want to hold for the long term, given its low expense ratio, or who don’t want to specialize only in the biotech field. The fund provides broad healthcare sector exposure, and combined with its more than 400 holdings, this ETF delivers greater diversification than IBBQ. It includes biotechnology companies, which comprise 23% of the fund, so you don’t miss out on this sub-sector. VHT is an all-around solid ETF balancing a respectable dividend yield, good long-term performance, and a large AUM.

Robert Izquierdo has positions in Amgen and Johnson & Johnson. 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.