The Fidelity MSCI Health Care Index ETF (NYSEARCA:FHLC) is down about 5% year to date while the S&P 500 is up 7%. Over five years, FHLC has returned 15% against about 80% for the S&P 500.
If you bought FHLC for cheap sector diversification, fine. If you bought it expecting healthcare to keep pace with the broader market, the math has been telling you a different story for a while.
What the fund does
FHLC tracks the MSCI USA IMI Health Care 25/50 Index, holding 342 holdings across pharma, biotech, medical devices, and healthcare services. The expense ratio is 0.08%, genuinely cheap and among the lowest in the category. Assets sit at $2.85 billion, which makes it a credible but not dominant player against a larger competing healthcare index fund.
The return engine is dividends plus capital appreciation from large pharma. The fund paid about $0.26 per share in April and $0.23 per share in March, modest quarterly distributions that work out to a yield well under 2%. So this functions as a price-appreciation vehicle that happens to pay a small dividend, and the price has not been appreciating.
The performance gap that actually matters
When you look into healthcare stocks, most of them have been making aggressive moves in recent years. The broader landscape has been shifting in their favor as the population ages. That said, they have underperformed over the long term simply due to how fast tech stocks and indexes have grown, and they’ve dragged up most broad indexes along with them.
FHLC should thus be expected to underperform, and I’d argue you are better off buying biotech instead. The State Street SPDR S&P Biotech ETF (NYSEARCA:XBI | XBI Price Prediction) has delivered 59% in one-year gains. In comparison, FHLC has barely kept up with the big-name healthcare ETFs.
This is the part the fact sheet does not advertise. Sector ETFs earn their keep when the sector outperforms. Healthcare, despite the demographic story everyone keeps reciting about aging boomers, has been a market laggard for years. You are paying 0.08% to underperform, which is cheap, but cheap underperformance is still underperformance.
The concentration problem
Concentration is the other complication. Eli Lilly (NYSE:LLY) represents over 12% of the portfolio, with a handful of mega-cap pharma and managed-care names rounding out the top tier.
A passive index fund is supposed to spread risk across hundreds of names. FHLC spreads it across hundreds of holdings and then bets a meaningful slice on one GLP-1 story. If that weight loss franchise hits a competitive wall, the whole fund tilts with it.
Meanwhile the corners of healthcare that have actually performed, including specific subsector operators like nursing home and skilled-nursing providers, are inside a market-cap-weighted basket dominated by mega-cap pharma. Targeted exposure to those sub-industries would have served a healthcare bull better than this broad index over the past five years.
Where it might still fit
FHLC works as a small defensive sleeve, maybe 3% to 5% of a diversified portfolio, for someone who wants healthcare beta at the lowest possible cost and accepts the sector will move on regulatory news and drug pricing rather than tech-style growth. Larger competing healthcare index funds do essentially the same job with a bigger asset base and a longer track record if liquidity matters to you.
For anyone holding FHLC as a core growth position, the data is unkind. The healthcare story may eventually reassert itself. While you wait, you are giving up market returns to own a sector that has not earned the premium of a dedicated allocation.
if you actually want to make the most out of healthcare, consider looking into biotech and nursing home REITs. They’re likely to do much better than something that tries to hold onto “everything healthcare” at once.
Top Gaining Stocks
Top Losing Stocks