The 3 Best Healthcare ETFs to Buy

The U.S. healthcare industry is monstrous. In 2020, Americans collectively spent a combined $4.1 trillion on healthcare according to information from Insider Intelligence. With 330 million U.S. citizens, this comes out to approximately $12,400 per person. Additionally, thanks to an exponentially growing population, this market is likely not slowing down anytime soon. Analysts expect that the U.S. healthcare industry could grow to as much as $6.2 trillion by 2028. This means that identifying the best healthcare ETFs to buy should be a big focus for investors over the coming years.

Benefits of Healthcare ETFs

An exchange-traded fund (ETF) is a fund that invests in a large portfolio of securities. ETFs are designed to track a particular index, sector, commodity, or asset. The most common example of an ETF is the SPDR S&P 500 ETF. Furthermore, this fund tracks all the companies in the S&P 500. The ETFs listed below all track companies that operate in the healthcare industry.

There are plenty of benefits to investing in ETFs. To start, buying shares in one of the ETFs below will instantly diversify your portfolio. Instead of owning one or two healthcare stocks, you can invest in the entire industry. One way to envision this is to think of a fruit bowl. Instead of buying one whole piece of fruit, you can buy a fruit bowl. With a fruit bowl, you get a few slices of many different types of fruit.

ETFs are also lauded as a more reliable alternative to stock picking. Investing in ETFs reduces the time, stress, and risk of picking stocks yourself. If you prefer to, you can spend hours researching all the different healthcare companies. Or, on the other hand, you can just buy an ETF and get exposure to the entire industry.

Last, ETFs are known for having incredibly low fees. Over time, investing in low-fee funds can greatly enhance your total return.

With that in mind, let’s examine the three best healthcare ETFs to buy. To come up with this list, I selected the three largest ETFs based on total assets under management (AUM). “Assets under management” is the total amount of money that the fund manages for investors. In general, larger funds are likely to be more reliable.

No. 3 Health Care Select Sector SPDR Fund (NYSE: XLV)

Assets Under Management: $38.6 billion

The Health Care Select Sector SPDR Fund is by far the biggest healthcare ETF. In fact, it’s over twice as large as the next biggest fund. This, by itself, qualifies it as one of the best healthcare ETFs to buy. The Health Care Select Sector SPDR Fund seeks to give investors exposure to the overall healthcare industry. It does this by investing in companies that operate in pharmaceuticals, health care equipment, biotechnology and healthcare providers. The bulk (28.4%) of the fund’s holdings are companies that operate in the pharmaceutical space.

This fund’s top holdings are UnitedHealth Group, Johnson & Johnson, Pfizer, AbbVie and Thermo Fisher. It’s down 6% so far YTD but up 63% over the past five years.