Which Healthcare ETF Is the Better Buy: Invesco's IBBQ or State Street's XPH? |

The Invesco Nasdaq Biotechnology ETF (IBBQ 2.59%) and State Street SPDR S&P Pharmaceuticals ETF (XPH 2.30%) both target healthcare innovation but differ in their diversification levels and cost structures.

These two funds provide distinct ways to access the domestic drugmaking and biotech landscape. While XPH offers equal-weighted exposure specifically to the pharmaceutical industry, IBBQ tracks a broader basket of biotechnology and pharmaceutical companies listed on the Nasdaq Stock Market. This analysis explores how their different indexing strategies and risk profiles may fit into a long-term portfolio.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12months. Dividend yield is the trailing-12-month distribution yield.

The Invesco fund is the more affordable option, carrying an expense ratio of 0.19% compared to the 0.35% charged by the SPDR fund. IBBQ also provides a higher payout, with a trailing dividend yield of 0.80% versus 0.50% for XPH.

Performance & risk comparison

What’s inside

Invesco Nasdaq Biotechnology ETF generally dedicates at least 90% of its capital to tracking the Nasdaq Biotechnology Index, which is designed to gauge the returns of biotechnology and pharmaceutical companies on that exchange. It primarily invests in the healthcare sector, which accounts for 94% of the portfolio, with the remainder held in cash and other assets. The fund is highly diversified with 253 holdings, and its largest positions include Vertex Pharmaceuticals (VRTX 2.22%) at 8.40%, Amgen (AMGN 0.02%) at 7.90%, and Gilead Sciences (GILD 3.65%) at 6.95%. Invesco Nasdaq Biotechnology ETF has paid $0.26 per share over the trailing 12 months, which on its recent ~$33.63 share price works out to a 0.80% yield. It was launched in 2021.

State Street SPDR S&P Pharmaceuticals ETF utilizes a representative sampling technique to track the S&P Pharmaceuticals Select Industry Index, maintaining a 100% allocation to the healthcare sector with a focus on drugmakers. This fund is more concentrated than its Invesco counterpart, holding 65 positions. Its largest positions include Definium Therapeutics (DFTX 2.85%) at 2.89%, MBX Biosciences Inc (MBX 7.09%) at 2.80%, and Veradermics (MANE 4.25%) at 2.14%. Because it uses an equal-weighted index, it avoids the heavy concentration in mega-cap stocks seen in market-cap-weighted alternatives. State Street SPDR S&P Pharmaceuticals ETF has paid $0.34 per share over the trailing 12 months, which on its recent ~$67.16 share price works out to a 0.50% yield. It was launched in 2006.

For more guidance on ETF investing, check out the full guide at this link.

What this means for investors

Biotech and pharmaceutical investing have a humbling track record. Both IBBQ and XPH have significantly underperformed the S&P 500 over the past five years, serving as a reminder that healthcare innovation is one of the most exciting investment themes and one of the most difficult to profit from. Drug development is expensive, slow, and brutally uncertain. Most clinical trials fail, and even successful drugs face pricing pressure, patent cliffs, and regulatory hurdles that can erase years of gains overnight.

That context matters before choosing between these funds. IBBQ spreads risk across 253 companies, offering broad diversification within a notoriously volatile sector. XPH takes a modified equal-weighted approach across just 65 pharmaceutical companies, amplifying the impact of smaller, less proven names that most investors would not recognize.

IBBQ charges roughly half of what XPH does and offers broader exposure. For most long-term investors, IBBQ’s lower cost and broader diversification make it the more practical entry point into healthcare innovation. XPH is a more targeted bet for those with specific conviction in the pharmaceutical sub-sector.

Sara Appino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amgen, Gilead Sciences, and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.