IHE vs IXJ: Which Popular Healthcare ETF Is the Better Buy for Investors?
Investors comparing the iShares U.S. Pharmaceuticals ETF (IHE) and the iShares Global Healthcare ETF (IXJ) must choose between concentrated U.S. pharmaceutical industry exposure and a broader, global healthcare strategy.
Intelligence analysis by Llama
Both funds offer targeted access to the healthcare sector, yet they take fundamentally different geographic and industry approaches. IHE focuses exclusively on the domestic drug manufacturing and distribution pipeline, while IXJ captures a wider array of global companies.
Imagine you're a doctor, and you need to choose between two different medicines to help your patients. One medicine is made in the United States, and the other is made all around the world. Both medicines are good, but they work in different ways. The medicine made in the United States is like a special tool that only helps people in the US, while the medicine made all around the world is like a magic potion that can help people everywhere.
Analysis
A $60B Vote of Confidence
The iShares Global Healthcare ETF (IXJ) offers greater diversification across geography and industries, with exposure to insurance companies and medical technology manufacturers. This makes it less likely to underperform due to a single issue, such as competition with lower-cost biosimilar versions of popular GLP-1 treatments. In contrast, the iShares U.S. Pharmaceuticals ETF (IHE) has outperformed in recent years, but its outsized gains are largely due to the success of weight-loss drugs that target GLP-1 receptors.
Why Cursor?
Investors looking to diversify their holdings probably want to avoid the iShares U.S. Pharmaceuticals ETF. The benchmark index it follows, the Dow Jones U.S. Select Pharmaceuticals Index, is heavily weighted toward its top two holdings, Johnson & Johnson and Eli Lilly. They make up 21.8% and 21.4% of the overall portfolio at the moment. The iShares Global Healthcare ETF offers greater diversification across geography and industries. Two of its top ten holdings don’t sell pharmaceuticals. Plus, its second-largest holding, Johnson & Johnson, still receives more than a third of its total income from the sale of medical devices.
The Road Ahead
For more guidance on ETF investing, check out the full guide at this link. The iShares U.S. Pharmaceuticals ETF has paid $1.47 per share over the trailing 12 months, which, on its recent ~$100.13 share price, works out to a 1.47% yield. In comparison, the iShares Global Healthcare ETF has paid $1.44 per share over the trailing 12 months, which, on its recent ~$99.67 share price, works out to a 1.44% yield.
Key points
- The iShares Global Healthcare ETF offers greater diversification across geography and industries.
- The iShares U.S. Pharmaceuticals ETF has outperformed in recent years, but its outsized gains are largely due to the success of weight-loss drugs.
- The iShares Global Healthcare ETF has paid $1.44 per share over the trailing 12 months, which, on its recent ~$99.67 share price, works out to a 1.44% yield.
- The iShares U.S. Pharmaceuticals ETF has paid $1.47 per share over the trailing 12 months, which, on its recent ~$100.13 share price, works out to a 1.47% yield.
If the iShares Global Healthcare ETF continues to outperform the iShares U.S. Pharmaceuticals ETF, it could be a sign that the global healthcare industry is growing faster than the US pharmaceutical industry. This could lead to increased demand for healthcare services and products, benefiting companies like Johnson & Johnson and Eli Lilly.
If the iShares U.S. Pharmaceuticals ETF continues to outperform the iShares Global Healthcare ETF, it could be a sign that the US pharmaceutical industry is experiencing a surge in growth due to the success of weight-loss drugs. However, this could also lead to increased competition and lower prices for these drugs, potentially hurting the profitability of companies like Johnson & Johnson and Eli Lilly.
