Investing in individual stocks can make some investors nervous due to the amount of necessary research and the risk associated with volatility in the market. One way to quiet those nerves is to place your money into exchange-traded funds that follow a market or sector index and are managed by a financial institution. Each ETF holds positions in a group of stocks and can be traded in real-time, just like stocks.
Three healthcare ETFs that provide long-term investors with diversification, along with growth opportunities to outpace the S&P 500, include Vanguard Health Care ETF ( VHT -1.10% ), Blackrock iShares U.S. Healthcare Providers ETF ( IHF -1.77% ), and Blackrock iShares U.S. Medical Devices ETF ( IHI -0.83% ).
1. Vanguard goes heavy on pharma, and light on expenses
The average expense ratio for ETFs has trended downward since 2008, driven by an injection of new ETFs on the market, giving investors an opportunity to increase their gains. But even at an average rate of 0.18% for asset-weighted funds, Vanguard comes in lower at 0.10%. With no minimum investment and a low expense ratio, it removes potential front-end obstacles that might scare away some investors.
Because the fund aims to track the healthcare index as a whole, it should continue to benefit from two growth areas. First, the pharmaceutical market is projected to grow at a 5.7% compound annual rate through 2026. Second, the population of people reaching age 65 over the next 10 years is expected to increase, leading to more spending on Medicare and Medicaid services.
Topping off the benefits of this ETF is a 1.14% dividend yield, which amounted to a $3.05-per-share distribution in dividends for 2021, and leads the pack of these three ETFs. A 15% average annualized return over the past 10 years is impressive as well.
2. Blackrock’s U.S. Healthcare Providers ETF has a strong record
When long-term investors look to build out a portfolio, it’s a good practice to compile a few investments that serve with consistency to support a foundational base. This ETF has provided positive returns in 13 of the 14 years since its inception.
Comparing it to the Vanguard healthcare ETF, there are…
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