Healthcare remains one of the most popular defensive sectors for investors seeking stability during uncertain economic environments.

Demand for pharmaceuticals, medical devices, healthcare services, and biotechnology innovation tends to remain resilient regardless of broader economic conditions, making healthcare a core portfolio allocation for many long-term investors.

Both the Fidelity MSCI Health Care Index ETF (FHLC) and the iShares U.S. Healthcare ETF (IYH) provide exposure to the sector, but they achieve that goal through noticeably different portfolio structures.

FHLC Offers Broader Diversification

FHLC tracks the MSCI USA IMI Health Care Index and currently holds approximately 338 healthcare companies.

Its portfolio includes large-cap pharmaceutical giants alongside mid-cap and smaller healthcare businesses involved in biotechnology, medical technology, diagnostics, and healthcare services.

The fund’s largest holdings include Eli Lilly at approximately 14%, Johnson & Johnson at 8.6%, and AbbVie at 6.1%.

This broader approach gives investors exposure to established industry leaders while also capturing potential growth opportunities among smaller healthcare innovators.

IYH Focuses on Blue-Chip Healthcare Leaders

IYH takes a more concentrated approach with roughly 101 holdings.

The ETF focuses primarily on large-cap healthcare companies and carries heavier allocations to its largest positions.

Its top holdings closely mirror FHLC but carry greater weightings, with Eli Lilly representing approximately 15.8% of assets, Johnson & Johnson 9.7%, and AbbVie 6.9%.

Because of this concentration, IYH’s performance is more heavily influenced by the fortunes of a relatively small group of healthcare giants.

Fees Matter More Than Many Investors Realize

One of the most important differences between the two funds is cost.

FHLC charges an expense ratio of just 0.08%, making it one of the least expensive healthcare ETFs available.

IYH charges 0.38%, nearly five times higher.

While the difference may appear small in a single year, the impact compounds over decades. Lower expenses allow investors to retain more of their investment returns and can meaningfully improve long-term wealth accumulation.

For investors holding healthcare exposure for 10, 20, or 30 years, this cost advantage becomes increasingly important.

Performance Has Been Similar

Despite their structural differences, the two funds have delivered relatively similar results.

Over the past five years, a hypothetical $1,000 investment would have grown to approximately $1,192 in IYH versus roughly $1,176 in FHLC.

Risk profiles have also been nearly identical, with both funds experiencing maximum drawdowns of approximately 18% during periods of market stress.

The similarity suggests that investors are largely receiving comparable healthcare exposure despite the differences in portfolio construction.

Income Advantage Goes to FHLC

FHLC also provides a slight income advantage.

The ETF currently offers a trailing twelve-month dividend yield of approximately 1.40%, compared with 1.28% for IYH.

While dividend yield is not the primary reason most investors buy healthcare ETFs, the additional income further strengthens FHLC’s value proposition.

The Verdict

For most investors, FHLC stands out as the better healthcare ETF in 2026.

Its combination of extremely low fees, broader diversification, exposure to smaller healthcare innovators, and slightly higher dividend yield creates a compelling package for long-term portfolio construction.

IYH remains a solid option for investors who specifically want concentrated exposure to large-cap healthcare leaders and are comfortable paying a higher fee for that focus.

However, given the nearly identical risk characteristics and similar historical performance, FHLC’s lower-cost structure gives it a meaningful edge for most buy-and-hold investors.