Among the S&P 500’s 11 major sectors, three are widely considered “defensive” thanks to the inelastic demand for the services and products they provide. “Elasticity” refers to how sensitive consumer demand is to changes in price.

For utilities, consumer staples and health care, demand remains fairly constant regardless of economic conditions, helping companies maintain stable earnings and making their stocks less volatile during downturns.

But among the three, only health care pairs the kind of stability you see in consumer staples stocks and utility stocks with significant long-term innovation and growth potential.

From biotech breakthroughs and aging populations to advancements in diagnostics and personalized medicine, the sector offers more than just downside protection; it also provides exposure to transformative change.

Why buy health care ETFs?

Investing in health care through individual stocks exposes you to idiosyncratic, uncompensated risks, meaning risks tied to one company or sub-industry that don’t offer higher returns in exchange.

That’s because health care isn’t a single industry but a complex ecosystem made up of six major subgroups, each with its own structural challenges.

Take biotech. It’s known for high volatility because the success of these health care stocks hinges on clinical trials, many of which fail. Companies in this space tend to be boom or bust, and their stock prices reflect that.

Pharmaceutical companies face their own problems, most notably the patent cliff: a sharp drop in revenue that happens when a top-selling drug loses patent protection and generic competitors flood the market. That can wipe out billions in sales in a short time.

Health care providers and services, such as hospitals and insurers, are heavily exposed to regulatory risk and public scrutiny, especially following events like the assassination of Brian Thompson, CEO of UnitedHealth Group’s ( UNH ) insurance unit, in 2024, which reignited debates about the industry’s practices.

More stable segments do exist. For instance, medical equipment suppliers and life science toolmakers tend to fly under the radar but offer steady growth with less drama.

That’s why using health care ETFs makes sense. It spreads your exposure across all of these sub-industries that don’t always move in tandem. When one segment stumbles, another may outperform, giving you a smoother ride and broader access to both stability and innovation.

How we chose the best health care ETFs to buy

To narrow the field, we focused only on broad health care-sector ETFs. That means we excluded more niche funds that home in on specific industries such as biotech, pharmaceuticals or medical tools.

We also left out leveraged and inverse ETFs, which are typically geared toward short-term traders, not long-term investors.

From there, we used the standard trio of fees, liquidity and reputability to evaluate our picks:

Fees: There’s little reason to pay more than 50 basis points (0.5%) in annual expenses for a sector ETF in 2025, especially when many charge a fraction of that.

Liquidity: The best ETFs should be easy to trade. That means a tight 30-day median bid-ask spread to minimize implicit costs when buying or selling shares.

Reputability: We gave preference to health care ETFs from established asset managers with strong track records and funds that have enough assets under management (AUM) to avoid risk of closure due to low investor interest.

Best healthcare ETFs to buy

Health Care Select Sector SPDR Fund

Assets under management: $39.0 billion

Expense ratio: 0.08%, or $8 annually for every $10,000 invested

30-day median bid-ask spread: 0.01%

Dividend yield: 1.7%

The Health Care Select Sector SPDR Fund ( XLV ) offers large-scale, low-cost exposure to the sector by tracking a basket of 59 large and mid-cap health care companies drawn from the S&P 500 Index.

Because it’s weighted by market cap, the biggest names — Eli Lilly (LLY), Johnson & Johnson (JNJ) and AbbVie (ABBV) — carry the most influence.

That inclusion of these sector leaders makes XLV one of the best health care ETFs for investors seeking broad exposure to blue chip stocks with high liquidity and minimal fees. It also has options available.

Learn more about XLV at the State Street Global Advisors provider site.

Vanguard Healthcare ETF

Assets under management: $17 billion

Expense ratio: 0.09%

30-day median bid-ask spread: 0.04%

Dividend yield: 1.6%

The Vanguard Health Care ETF (VHT) offers more comprehensive coverage of the health care sector than most peers, with a portfolio of 407 companies.

It tracks the MSCI US Investable Market Health Care 25/50 Index, which includes not just large caps but also a healthy mix of mid-cap stocks and small-cap stocks.

Learn more about VHT at the Vanguard provider site.

(Tony Dong, MSc, is a contributing writer to Kiplinger.com.)

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