ETFs
The 20 Best Healthcare ETFs of the Decade
In a philosophical and financial sense, health is wealth.
In the United States, health care is not only a necessity; it is also an extremely profitable industry. In 2022, health spending represented 17.3% of the country’s gross domestic product, according to the Centers for Medicare and Medicaid Services. In total, Americans spent $4.5 trillion on medical bills, an average of $13,493 per person.
All of this spending makes healthcare a major segment of the U.S. stock market. In 2023, healthcare stocks had the 10th highest total return of any sector, according to Morningstar Direct.
“I think investing in health care is common sense,” said Kashif Ahmed, president of American private heritage in Bedford, Massachusetts. “Whether it’s an ETF, mutual fund, or individual stocks, can you live without healthcare? No.”
And in one important way, time is on this sector’s side: Americans are getting older, and as they age, they will need more health care. From 2010 to 2020, the U.S. population aged 65 and older grew 38.6% – the fastest rate since the 19th century, the US Census calculated. By 2034, older people are expected to more numerous than children for the first time in American history.
This gray tsunami it’s going to require a lot of medicine, equipment and medical services. With all this demand expected to increase, investing in healthcare seems like a safe bet for many wealth managers.
“Health care is a growing segment of the U.S. economy as the reach of technology in medicine expands,” said Robin Hovis, financial advisor at LPL Financial in Millersburg, Ohio. “Investors should own stakes in this important sector.”
How can investors ride this wave? Choosing particular stocks in the healthcare sector can be tricky, but ETFs offer something that almost every financial advisor recommends: diversification.
“In one fell swoop, you are able to capture the entirety of that particular market,” Ahmed said. “I think it’s an easy way to do it, rather than trying to bet on one company. … Why bet on one store when you can buy the whole mall?”
On the other hand, one of the great advantages of the sector is also a handicap. The United States spends more on health care than any other country, according to the Organization for Economic Cooperation and Development. That means more profits for the health care industry, but also more political pressure to reform the system – which adds an element of unpredictability to this otherwise stable market.
“The federal government is the 800-pound gorilla of the health care industry,” Hovis said. “Sudden Medicare and Medicaid policy changes, as well as legislation that affects what health insurers can and cannot do, will have far-reaching and often unintended consequences for companies that provide health care products and services. “
Such policy changes, however, are rare. The last major national reform was the Affordable Care Act, passed in 2010. And for another overhaul to come, Congress would have to break the usual gridlock — which is fierce on this issue.
LEARN MORE: The Financial Advisor’s Guide to Medicare
Meanwhile, health-related funds have remained very profitable. Over the past decade, the top eight healthcare ETFs have generated annualized returns above 10%.
“It’s no surprise that all of these ETFs performed well,” Ahmed said. “Why wouldn’t you invest in something that every person around the world needs every day?”
To see the top 20 healthcare funds of the last 10 years, scroll through the list below. All data comes from Morningstar Direct and is current as of May 14, 2024.