Both the Fidelity MSCI Health Care Index ETF (NYSEMKT:FHLC) and the Invesco Pharmaceuticals ETF (NYSEMKT:PJP) focus on the medical space, but their underlying strategies, costs, and risk profiles differ significantly for long-term portfolios.
Understanding these structural differences is key to determining which fund best fits your needs. Here’s how the two funds stack up on the most important factors for 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.
FHLC is more affordable on fees with a lower expense ratio, and it also offers a higher dividend yield than the Invesco fund. This could make it more appealing to investors focused on costs or income.
Performance & risk comparison
What’s inside
FHLC tracks a broad index of U.S. healthcare stocks, offering exposure to over 300 holdings across the entire sector. Its largest positions include Eli Lilly, Johnson & Johnson, and AbbVie. The fund was launched in 2013, and it has paid $1.02 per share in dividends over the trailing 12 months.
PJP takes a more concentrated approach with a focus specifically on pharmaceutical companies, currently holding just 33 securities. Its largest positions include Abbott Laboratories, Amgen, and AbbVie. It was launched in 2005 and has paid $1.06 per share in dividends over the trailing 12 months.
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Which looks like the better buy
While PJP and FHLC both cover the healthcare sector, their differences in diversification are important for investors to consider.
Because PJP holds just 33 stocks and focuses exclusively on pharmaceutical companies, it offers much less diversification than the broader FHLC. Sometimes, a more targeted approach can lead to higher returns. That appears to be the case here, as PJP has outperformed FHLC in both one- and five-year total returns.
The downside to less diversification, though, is that it increases risk. FHLC holds over 300 stocks across the broader healthcare sector, which provides greater protection if the pharmaceutical subsector is hit by a wave of volatility.
Fees are another significant difference to consider. PJP charges an expense ratio of 0.57% compared to 0.08% for FHLC. This means investors can expect to pay $57 or $8 per year in fees, respectively, for every $10,000 invested.
While that may seem like a subtle difference, it can add up to thousands of dollars over time for those with large account balances.
In short, both funds can be smart buys, but the right one for you depends on your goals. FHLC is cheaper to own and offers more diversification to help protect against risk. PJP, on the other hand, has been more lucrative in recent years, and its more concentrated approach can help fill any gaps you may have in your portfolio.
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Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie, Abbott Laboratories, Amgen, and Eli Lilly. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
FHLC vs. PJP: Which Healthcare ETF Is the Better Buy for Investors? was originally published by The Motley Fool