Is the iShares Pharmaceuticals ETF or iShares Healthcare ETF the Better Fund for 2026?

The iShares U.S. Healthcare ETF (NYSEMKT:IYH) provides a broad basket covering medical providers, devices, and biotechnology, while iShares U.S. Pharmaceuticals ETF (NYSEMKT:IHE) offers concentrated exposure strictly to the drug manufacturing industry.

Investors seeking healthcare exposure often choose between niche subsectors, such as drug manufacturing, and broader industry baskets. Both iShares U.S. Pharmaceuticals ETF and iShares U.S. Healthcare ETF are managed by iShares, a division of BlackRock Inc (NYSE:BLK), but they differ significantly in their scope. While the former focuses strictly on pharmaceutical giants, the latter represents a more diverse range of medical services and technologies.

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 as of the end of the trading day on Aug. 27, 2026.

Management fees are identical for this pair, with iShares U.S. Healthcare ETF carrying a 0.37% expense ratio as does the iShares U.S. Pharmaceuticals ETF. This lack of a difference means costs are not a deciding factor for long-term investors. The iShares U.S. Pharmaceuticals ETF offers a higher trailing yield.

Performance & risk comparison

What's inside

iShares U.S. Healthcare ETF holds 100 stocks across the domestic medical spectrum, diversifying beyond drugmakers into equipment manufacturers and healthcare providers. Its largest positions include Eli Lilly & Co (NYSE:LLY) at 14.5%, Johnson & Johnson (NYSE:JNJ) at 10%, and Abbvie Inc (NYSE:ABBV) at 7.1%. It was launched in 2000. The fund has paid $0.80 per share over the trailing 12 months, which on its recent ~$72.63 share price works out to a 1.1% yield.

iShares U.S. Pharmaceuticals ETF is more concentrated, maintaining 55 holdings specifically within the pharmaceutical space. Because of this narrower focus, its top holdings represent much larger portions of the portfolio; Johnson & Johnson at 22.5%, Eli Lilly at 20.5%, and Merck & Co Inc (NYSE:MRK) at 5% are its biggest weights. It was launched in 2006. The fund has paid $1.47 per share over the trailing 12 months, which on its recent ~$104.73 share price works out to a 1.4% yield.

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Which looks like the better buy?

Both these ETFs offer exposure to the healthcare sector and are alike in many ways.

The similarities: they're both from iShares, and their expense ratios are the same. Both funds are almost all (99%-plus) in U.S. stocks, and both are highly concentrated in their top 10 -- 59% for IYH and just about 78% for IHE.

Still, they do have some differences investors should take into account when weighing whether to invest.

IYH, the iShares Pharmaceutical ETF, is mostly honed in on large-cap stocks, with 71% of its portfolio in that style of equity. The fund has 24% in mid caps and 6% in small caps (the total of the numbers exceeds 100% because of rounding).

IHE, the healthcare ETF from iShares, is also mostly in large caps, at 59%, but has a greater share of its holdings in small caps, at 24% of the portfolio.

Given the similarities of the funds -- management company, expenses, and the healthcare focus, it comes down to performance as the benchmark to make a decision on.

Here, IHE, the broader healthcare fund, is the winner. Over the 3-, 5-, and 10--year time periods, IHE has produced annualized returns of 19.9%, 11.9%, and 9.3%. That beats IYH over the 3-year and 5-year periods. IYH produced respective returns in those periods of 10% and 5.5%. Over the past decade, IYH beat its sibling with annualized returns of 10.5% to 9.3%.

In short, performance is what counts long-term. Both are good ETFs from a respected fund manager, but the consistent recent performance of IHE makes it the choice here.

Brendan Coffey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie, BlackRock, Eli Lilly, and Merck. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.