The healthcare sector has been generating significant investment attention in recent years, with biopharma M&A reaching $65 billion in the first quarter of 2026 alone. Amidst this backdrop, investors are faced with a choice between two healthcare-focused exchange-traded funds (ETFs): Fidelity MSCI Health Care Index ETF (FHLC) and First Trust NYSE Arca Biotechnology Index Fund (FBT). While both funds target the medical space, they differ significantly in their approach and investment strategy.
Cost Efficiency: A Major Differentiator
One of the most notable differences between FHLC and FBT is their cost structure. FHLC boasts an expense ratio of 0.08%, making it significantly more affordable than FBT, which charges 0.55%. This translates to a cost savings of 0.47 percentage points per year for investors who opt for FHLC. For long-term investors, this cost difference can have a substantial impact on their overall returns.
Diversification vs Concentration
FHLC tracks the MSCI USA IMI Health Care Index, providing exposure to 365 different companies across the healthcare sector. This diversified portfolio includes pharmaceuticals, medical devices, health insurers, and biotech companies, among others. In contrast, FBT is a more concentrated play, holding 30 biotechnology stocks with equal portfolio weight. While FBT's concentrated approach has delivered extraordinary returns over the past year, it also exposes investors to sharp declines when clinical trials disappoint.
Performance Comparison
A comparison of the two funds' performance over the past year reveals significant differences. FBT has returned 59.2% over the trailing 12 months, while FHLC has returned 29.2%. However, it's essential to consider the volatility associated with FBT's concentrated approach. The fund's beta measures 0.67, indicating that its price movements are more volatile than the S&P 500. In contrast, FHLC's beta is 0.60, suggesting a lower level of volatility.
Key Metrics
The following table highlights the key metrics for both funds:
Expense Ratio: FHLC (0.08%), FBT (0.55%)
1-yr Return: FBT (59.2%), FHLC (29.2%)
Dividend Yield: FHLC (1.2%), N/A for FBT
Beta: FBT (0.67), FHLC (0.60)
Max Drawdown (5 yr): FBT (29.9%), FHLC (17.7%)
Growth of $1,000 over 5 years: FBT ($1,588), FHLC ($1,331)
Conclusion
For most long-term investors, FHLC's broader diversification and lower cost make it the better buy. While FBT's concentrated approach has delivered exceptional returns over the past year, its volatility and higher cost make it a riskier proposition. Investors who are willing to absorb the volatility associated with FBT's concentrated approach may find it rewarding, but for those seeking a more stable and cost-efficient option, FHLC is the better choice.
