Investors choosing between the State Street Health Care Select Sector SPDR ETF (NYSEMKT:XLV) and First Trust NYSE Arca Biotechnology Index Fund (NYSEMKT:FBT) must weigh XLV’s broad healthcare diversification and low cost against FBT’s concentrated, high-growth biotechnology focus.
Both funds provide targeted exposure to the healthcare sector but differ significantly in scope. While XLV tracks the entire S&P 500 healthcare component, FBT zeros in on a specific equal-weighted basket of biotechnology companies. This comparison explores how these differing strategies impact cost, volatility, and long-term performance.
Snapshot (cost & size)
Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
The State Street Health Care Select Sector SPDR ETF is significantly more affordable than the First Trust fund. It carries an expense ratio of 0.08%, whereas the First Trust fund charges 0.55%.
Performance & risk comparison
What’s inside
The State Street Health Care Select Sector SPDR ETF provides exposure to 60 holdings across the healthcare sector of the S&P 500 Index. Its largest positions include Eli Lilly & Co. (NYSE:LLY) at 15.95%, Johnson & Johnson (NYSE:JNJ) at 10.69%, and AbbVie (NYSE:ABBV) at 7.51%. The fund was launched in 1998.
The First Trust NYSE Arca Biotechnology Index Fund tracks 30 holdings within the NYSE Arca Biotechnology Index. Its top holdings include Corcept Therapeutics (NASDAQ:CORT) at 5.87%, NeoGenomics (NASDAQ:NEO) at 5.03%, and Veracyte (NASDAQ:VCYT) at 4.95%. This fund was launched in 2006.
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What this means for investors
The State Street Health Care Select Sector SPDR ETF (XLV) and First Trust NYSE Arca Biotechnology Index Fund (FBT) both offer investors an efficient way to invest in healthcare companies. Which to pick depends on whether you want to target the biotech market or prefer broader healthcare industry exposure.
FBT is for investors seeking the high-risk, high-reward stocks of the biotechnology sector. This reality is illustrated by the fund’s impressive one-year return contrasted against the larger five-year max drawdown. Since it pays no dividend, the ETF is for those who are looking strictly to maximize growth, and FBT’s equal-weight approach means a breakthrough from any of its holdings can deliver an impact on its performance.