For investors looking to take advantage of the tailwinds of Canada’s world-renowned healthcare system, investing in Canadian Healthcare ETFs may be an attractive option. In recent years, ETFs have become increasingly popular as investors seek to benefit from the sector’s stability and growth potential. We’ll discuss the benefits and drawbacks of investing in a Canadian Healthcare ETF below so you can make an informed decision about whether this type of investment is right for your portfolio.
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What are ETFs?
Exchange Traded Funds, or ETFs, are a type of security that tracks an underlying asset such as stocks, bonds, commodities or even a specific sector. ETFs differ from traditional mutual funds in that they are traded throughout the day on stock exchanges. In addition, ETFs offer investors access to many different assets within one financial product.
Unlike mutual funds, ETFs do not have a net-asset value (NAV) calculated daily but trade at market prices which may be higher or lower than their actual NAV. The ease of buying and selling ETFs makes them attractive to investors looking for timely diversification with low costs.
Additionally, they can provide advantages over other investment products due to their tax efficiency, low fees, and absence of minimum account balances or trading commissions. ETFs offer individual investors an easy way to gain exposure to a range of assets quickly and efficiently.
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How they work
Exchange-traded funds (ETFs) are an easy and efficient way for individual investors to diversify their portfolios. ETFs track a variety of different market and sector indices, and are designed to provide long-term capital appreciation to shareholders.
Generally, ETFs will offer the same advantages of a mutual fund, including professionally managed investments, broad asset allocations, and tax efficiency. The main difference is that ETFs trade like stocks on a stock exchange; meaning that you can buy or sell them at any point during a trading day. In addition, investors have more flexibility when it comes to buying and selling compared to mutual funds.
With an ETF portfolio, one can quickly capitalize on short-term investment opportunities in today’s market environment.
Related Reading: Best Dividend ETFs in Canada for 2022
Overview of the Canadian Healthcare ETF sector
Healthcare ETFs provide an advantageous and safe way to invest in the healthcare sector rather than attempting to decipher which individual stocks will be profitable. They are comprised of a diverse selection of companies, making them much more stable investments than picking individual biotech or healthcare stocks.
Why you should invest
Investing in healthcare-focused ETFs is both a prudent decision and exciting opportunity. Healthcare-related services are essential to the well-being of society and, as such, provide investors with intense stability and consistent returns. While also offering them a chance to invest in companies whose mission is focused on improving lives.
Investing in the healthcare field brings lucrative opportunities for portfolio growth and satisfaction from contributing towards social good. With ever-increasing technological developments in healthcare, this asset class is only expected to become more important and dynamic. Getting involved can be an incredibly exciting investment opportunity for any portfolio.
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What is the Best Healthcare ETF in Canada?
When it comes to healthcare ETFs, you want ones with a track record of resilience and attractive returns. Some of the best healthcare ETFs in Canada are listed below. These Canadian healthcare ETFs offer exposure to global companies across the entire healthcare sector with compelling return potential.
| Ticker | Risk Level | Net Assets | Yield | MER |
| TSX:XHC | Medium | $574M | 1.08% | 0.66% |
| TSX:ZUH | Medium | $357M | 0.42% | 0.4% |
| TSX:TDOC | Medium | $48M | 1.54% | 0.38% |
| NASDAQ:IBB | Medium | $7.4B | 0.26% | 0.45% |
| NYSEARCA:VHT.IV | High | $19.8B | 1.41% | 0.1% |
iShares Global Healthcare Index ETF (CAD-Hedged)
XHC is an ideal ETF for Canadian investors due to its broad diversification across healthcare issuers. The fund is managed by seasoned professionals and offers investors a portfolio full of long-term potential. While simultaneously providing protection from unpredictable currency fluctuations in the market. XHC’s unique focus on the healthcare sector makes it an attractive option for smart investors looking to build a diverse portfolio with guaranteed returns. Investing in XHC helps ensure your portfolio is well prepared for the future and allows you to enjoy peace of mind knowing that your money is safe from potential currency upheaval.
BMO Equal Weight US Healthcare Index ETF (CAD-Hedged)
ZUH is a unique opportunity among Canadian ETFs. As a passive investment vehicle, it provides direct access to 70 of the leading United States healthcare stocks in an equal-weighted portfolio. This even distribution offers users the potential for better performance, while diversification helps manage overall risk. With management fees among the lowest in the industry, ZUH serves as a convenient way for Canadian investors to gain exposure to international healthcare stocks without switching brokers or complicated paperwork.
TD Global Healthcare Leaders Index ETF
TDOC stands apart from other healthcare funds with its modern approach to stock selection and dividend payouts. This Canadian-listed ETF holds an impressive 146 of the world’s most esteemed healthcare stocks, which are updated daily to ensure investors get the best out of their investments.
Additionally, 64.30% of its fund weight is concentrated in US-listed companies like Amgen, AstraZeneca and Johnson & Johnson – some of the biggest names in the industry. Investors in TDOC will appreciate its higher dividend yields dispersed on a quarterly basis as well as an opportunity to diversify their holdings geographically and across all sectors of the healthcare industry with a single designation.
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iShares Biotechnology ETF
Investing in Blackrock iShares Biotechnology (IBB) can be an economical way to take a closer look at the biotechnology sector on the NASDAQ exchange. This ETF trades for USD and is home to 266 of the most important US-listed biotech companies. Examples of some of these include Gilead Sciences, Amgen, Regeneron and Moderna – all of which are giants in the industry. Despite their pre-revenue or non-profit statuses, these organizations are often investing a lot of effort into researching and creating treatments that might become profitable down the line. Thus, investing in biotechnology could provide excitement as well as potentially lucrative rewards.
Vanguard Health Care Index Fund ETF
VHT stands out amongst other healthcare ETFs as it provides comprehensive coverage of the healthcare industry across all three major sub-sectors. With a total of over 400 of the biggest US-listed stocks related to healthcare and biotechnology, VHT is an ideal option for investors seeking a diversified portfolio in this sector. It offers one of the most efficient means of investing in some of the top names including UnitedHealth Group, Johnson & Johnson, Pfizer, Eli Lilly, and AbbVie who have significant allocations throughout this fund. With 28% allocated to pharmaceuticals, 19.7% allocated to healthcare equipment and 17.9% allotted to biotechs, VHT is an excellent choice for investors looking to target and benefit from a wide range of US healthcare stocks on one platform.
Which Healthcare ETF is best?
Of the above list, the best healthcare ETF is TDOC, TD Global Healthcare Leaders Index ETF. This ETF has a relatively low MER of 0.45% and a yield of 0.26%. In addition, the ETF has assets under management of $48M which is lower than other similar ETFs, but communicates a lot of room for growth. However, all of the ETFs listed above are good choices. Which one you choose for your portfolio depends on your financial goals and appetite for risk.
Related Reading: 5 Best Money Market ETFs in Canada
Pros and Cons of Canadian Healthcare ETFs
Before moving ahead with a Canadian healthcare ETF purchase, consider the below pros and cons.
Pros
The pros of investing in healthcare ETFs include:
- Access to a wide array of healthcare-related companies
- Diversification across multiple sectors and sub-sectors
- Cost efficiency and potential tax advantages
- Liquidity; ETFs are easy to buy and sell on public exchanges
- Convenience; investors do not need to research each individual stock or security before making an investment decision
- Invest in a good cause
Related Reading: How to Invest in Index Funds in Canada
Cons
The cons of investing in healthcare ETFs include:
- Potentially high costs due to administrative fees, management expenses ratios, and trading commissions
- Limited transparency; it is difficult for investors to know exactly what securities are held within an ETF portfolio
- Limited customization; investors cannot tailor an ETF portfolio to their specific investment goals
- Lack of control over dividend reinvestment rates or timing
- Potential over-concentration risk when investing into a single sector or subsector. In addition, it is important for investors who wish to invest in healthcare ETFs understand that these investments carry inherent risks associated with any stock market investment, including price volatility, economic cycles, political events, and so on.
Benefits of Investing in Healthcare ETFs
Investing in healthcare ETFs can be an advantageous move for the savvy investor looking to capitalize on a resilient and growing sector of the economy. Healthcare ETFs offer investors exposure to a broad range of healthcare-related companies, allowing investors to benefit from potential gains across a variety of areas. External factors such as population growth, aging populations, and advances in medical technology have driven strong returns in the healthcare sector over time. As such, investing in a healthcare ETF today may prove to be a lucrative option over the long run due to its resilient nature and prospects for growth.
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