XLV vs IYH: Which Healthcare ETF Wins on Cost and Yield?

State Street Health Care Select Sector SPDR ETF (NYSEMKT:XLV) provides lower-cost exposure to blue-chip healthcare names, while the iShares U.S. Healthcare ETF (NYSEMKT:IYH) offers a broader portfolio with nearly twice as many holdings.

Investors looking to allocate capital to the medical sector often compare these two prominent funds. While both provide exposure to pharmaceutical and biotech giants, they differ significantly in their assets under management (AUM), cost structures, and depth of holdings, which may influence results for long-term investors.

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.

The State Street Health Care Select Sector SPDR ETF is significantly more affordable, with an expense ratio of 0.08% compared to 0.38% for its iShares counterpart. Additionally, XLV currently offers a higher dividend yield of 1.60%.

Performance & risk comparison

What's inside

State Street Health Care Select Sector SPDR ETF (NYSEMKT:XLV) provides focused exposure to companies in the S&P 500 healthcare sector, including medical equipment, health technology, and biotechnology. Its largest positions include Eli Lilly + Co (NYSE:LLY) at 16.11%, Johnson + Johnson (NYSE:JNJ) at 10.72%, and Abbvie (NYSE:ABBV) at 7.79%. It holds 60 stocks and was launched in 1998. State Street Health Care Select Sector SPDR ETF has paid $2.53 per share over the trailing 12 months, which, at its recent ~$161.44 share price, yields 1.60%.

iShares U.S. Healthcare ETF (NYSEMKT:IYH) tracks a broader benchmark of American healthcare stocks, offering a wider net with 100 holdings. Its top positions include Eli Lilly (NYSE:LLY) at 15.57%, Johnson & Johnson (NYSE:JNJ) at 10.33%, and Abbvie (NYSE:ABBV) at 7.52%. The fund was launched in 2000. iShares U.S. Healthcare ETF has paid $0.80 per share over the trailing 12 months, which, at its recent ~$67.98 share price, yields 1.20%. Its portfolio is similarly concentrated in the healthcare sector, which represents 99.00% of its holdings.

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Which is the better buy

The State Street Health Care Select Sector SPDR ETF (XLV) and the iShares U.S. Healthcare ETF (IYH) are both exchange-traded funds (ETFs) that focus on the healthcare sector. However, there are some key differences between these two ETFs that prospective investors should understand. Let’s see how they compare.

To start, we’ll have a closer look at XLV. This ETF is one of the oldest, with a history dating back to 1998. Over that time, XLV has amassed over $41 billion in AUM, making it the largest healthcare ETFs and one of the largest ETFs overall. The fund holds about 60 stocks, most of which are megacap healthcare stocks like Lilly, Johnson & Johnson, and Abbvie. As for performance, the fund has delivered a total return of 157%, with a compound annual growth rate (CAGR) of 9.9%. That’s far less than the S&P 500, which has generated a total return of 301% and a CAGR of 14.9% over the same period. However, healthcare is a defensive sector that tends to underperform the broader market during prolonged bull markets, so its underperformance over the last 10 years isn’t unexpected. For income-seeking investors, XLV offers a 1.6% dividend yield, providing steady income. Lastly, XLV has low fees, as evidenced by its 0.08% expense ratio.

Then there’s IYH. This fund, founded in 2000, is another longstanding option for those seeking healthcare exposure. The fund holds around 100 stocks, offering greater diversification than XLV. Yet, many of its core holdings are very similar to XLV, including Lilly, Johnson & Johnson, and Abbvie. As for performance, the fund has delivered a total return of 151%, with a CAGR of 9.7% over the last 10 years — slightly lower than XLV. At any rate, the biggest drawback to this fund is its fee structure. The fund has an expense ratio of 0.38%. That’s significantly more than XLV, for a fund that has traditionally delivered performance very similar to XLV’s. Lastly, the fund’s dividend yield of 1.3% is less than its counterpart.

To sum up, many investors will favor XLV. It has the edge on several key factors, including fees, 10-year performance, and dividend yield.

Jake Lerch has positions in Select Sector SPDR Trust - State Street Health Care Select Sector SPDR ETF. 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.