If You Hold This Healthcare ETF, You're Losing Big

"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."

"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. 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."

"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 tracks the MSCI USA IMI Health Care 25/50 Index and holds 342 companies across pharma, biotech, medical devices, and healthcare services. The expense ratio is 0.08%, and assets total $2.85 billion. Returns have been weak versus the S&P 500, with about a 5% year-to-date decline and about 15% over five years compared with roughly 80% for the S&P 500. Dividend payments are modest, producing a yield well under 2%, so performance depends mainly on price appreciation. Healthcare stocks have faced long-term underperformance relative to faster-growing technology sectors, and the fund is expected to underperform when the sector does not lead. Biotech has shown stronger recent gains than FHLC.

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