The Vanguard Health Care Index Fund ETF (VHT) and the Fidelity MSCI Health Care Index ETF (FHLC) are two of the largest health care sector ETFs and two of the most popular among individual investors. Many investors compare VHT vs FHLC because they are so similar, although differences are difficult to find.
A quick reminder that this site does NOT provide investment recommendations. Fund comparisons (such as this one) are not conducted to identify the “best” fund (since that will vary from investor to investor based on investor-specific factors). Rather, these fund comparison posts are designed to identify and distinguish between the fund details that matter versus the ones that don’t.
The Short Answer
VHT and FHLC track the same index and there is no material difference between the funds. They are identical and interchangeable in my opinion.
The Longer Answer
Historical Performance: VHT vs FHLC
VHT was launched back in 2004, while FHLC was launched on October 21, 2013. Since then, the two funds have performed identically, with an annualized difference of only .06%! The cumulative performance differential over that timeframe has only been about 1.4% too! From a performance perspective, VHT and FHLC are identical and interchangeable.
Portfolio Exposures: VHT vs FHLC
Both VHT and FHLC track the same index, the MSCI US Investable Market Health Care 25/50 Index. Consequently, the two funds have identical geographic, market-cap, and industry exposures.
Geographic Exposure
Both VHT and FHLC hold essentially 100% stocks, so I will not dig into country exposures or market classification here. For all intents and purposes, the two funds have identical geographic exposures.
Market Cap Exposure
As mentioned above, both funds track the same index and have materially identical market cap exposures.
Sector Exposure
VHT and FHLC are health care ETFs and so their holdings are 100% health care stocks.
Practical Factors: VHT vs FHLC
Transaction Costs
As ETFs, both FHLC and VHT are free to trade on many platforms. Bid-ask spreads for both VHT and FHLC are extremely low and volume is sufficient to prevent most individual investors from “moving the market.”
Expenses
FHLC has a lower expense ratio at .08%, compared to VHT’s .10%. Although VHT is 25% more expensive, we’re talking about 2 basis points. At these low levels of expense ratios, the difference doesn’t matter.
Tax Efficiency & Capital Gain Distributions
Neither VHT nor FHLC has ever made a capital gains distribution and I do not expect them to make any moving forward. In my opinion, these two funds are equally tax-efficient.
From a tax-loss harvesting perspective, investors may want to avoid using these two funds as substitutes for one another since they could be considered “substantially identical” (given that they track the same index and are identical in many ways). There are other health care ETFs out there and those interested might want to read my comparison of VHT vs XLV (State Street’s health care ETF).
Bottom Line: VHT vs FHLC
VHT and FHLC are identical in nearly every way. I would not spend any time comparing them or trying to decide which is better.
Investors looking for a mutual fund should read my post of VHT vs VHCIX (VHT’s mutual fund share class).
