Should You Invest in the Vanguard Health Care ETF?

Looking for broad exposure to the Healthcare - Broad segment of the equity market? You should consider the Vanguard Health Care ETF VHT, a passively managed exchange traded fund launched on 01/26/2004.

An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility, and tax efficiency; they are also excellent vehicles for long term investors.

Investor-friendly, sector ETFs provide many options to gain low risk and diversified exposure to a broad group of companies in particular sectors. Healthcare - Broad is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 4, placing it in top 25%.

Index Details

The fund is sponsored by Vanguard. It has amassed assets over $17.89 billion, making it one of the largest ETFs attempting to match the performance of the Healthcare - Broad segment of the equity market. VHT seeks to match the performance of the MSCI US Investable Market Health Care 25/50 Index before fees and expenses.

The MSCI US Investable Market Health Care 25/50 Index is made up of stocks of U.S. companies within the health care sector.

Costs

Expense ratios are an important factor in the return of an ETF and in the long term, cheaper funds can significantly outperform their more expensive counterparts, other things remaining the same.

Annual operating expenses for this ETF are 0.10%, making it one of the least expensive products in the space.

It has a 12-month trailing dividend yield of 1.30%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund's holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Healthcare sector--about 100% of the portfolio.

Looking at individual holdings, Eli Lilly & Co LLY accounts for about 9.95% of total assets, followed by Unitedhealth Group Inc UNH and Johnson & Johnson JNJ.

The top 10 holdings account for about 48.87% of total assets under management.

Performance and Risk

The ETF return is roughly 6.87% and is up about 11.87% so far this year and in the past one year (as of 05/20/2024), respectively. VHT has traded between $223.10 and $270.54 during this last 52-week period.

The ETF has a beta of 0.71 and standard deviation of 14.69% for the trailing three-year period, making it a medium risk choice in the space. With about 411 holdings, it effectively diversifies company-specific risk.

Alternatives

Vanguard Health Care ETF holds a Zacks ETF Rank of 1 (Strong Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, VHT is an outstanding option for investors seeking exposure to the Health Care ETFs segment of the market. There are other additional ETFs in the space that investors could consider as well.

IShares Global Healthcare ETF IXJ tracks S&P Global 1200 Healthcare Sector Index and the Health Care Select Sector SPDR ETF XLV tracks Health Care Select Sector Index. IShares Global Healthcare ETF has $4.04 billion in assets, Health Care Select Sector SPDR ETF has $39.48 billion. IXJ has an expense ratio of 0.42% and XLV charges 0.09%.

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