Fidelity MSCI Health Care Index ETF: Evaluating Yield Sustainability and Sector Positioning for Long-Term Growth

The Fidelity MSCI Health Care Index ETF (FHLC) has emerged as a focal point for investors seeking exposure to a sector poised for structural transformation. With its latest quarterly distribution of $0.2560 per shareFidelity MSCI Health Care Index ETF (FHLC) ETF Dividend History^[1], scheduled for September 23, 2025, the ETF continues a trajectory of modest dividend growth, reflecting both sector dynamics and fund-level strategy. This analysis evaluates FHLC's yield sustainability and its alignment with healthcare sector trends to assess its long-term investment potential.

Yield Sustainability: A Delicate Balance

FHLC's dividend yield of 1.54% as of September 2025Fidelity MSCI Health Care Index ETF (FHLC) - Yahoo Finance^[2] appears modest but is underpinned by a consistent payout history. Over the past year, the ETF has delivered a 2.80% dividend growth rateFHLC Dividend History, Dates & Yield - Stock Analysis^[3], while its five-year average stands at 1.89%Fidelity MSCI Health Care Index ETF (FHLC) ETF Dividends Overview^[4]. Notably, the fund's payout ratio is listed as 0Fidelity MSCI Health Care Index ETF (FHLC) ETF Dividend History^[5], indicating that dividends are not tied to a fixed proportion of earnings but instead vary with market conditions. This flexibility could be a double-edged sword: while it allows FHLC to adjust payouts during periods of volatility, it also introduces uncertainty for income-focused investors.

Data from StockInvest.us reveals that FHLC's annual dividend has risen from $1.01 in 2024 to a projected $1.02 in 2025FHLC Dividend History - Fidelity® MSCI Health Care Index ETF^[6], a 6.22% increase over the trailing twelve months. Forward-looking projections suggest a yield on cost of 1.95% over three years and 2.28% over five yearsFHLC Dividend History - Fidelity® MSCI Health Care Index ETF^[7], implying confidence in the fund's ability to sustain and potentially grow distributions. However, these forecasts hinge on the continued performance of the MSCI USA IMI Health Care 25/50 Index, which FHLC tracksFidelity MSCI Health Care Index ETF (FHLC) - Yahoo Finance^[8].

Historical backtesting of FHLC's ex-dividend events from 2022 to 2025 reveals mixed performance patterns. For instance, the ETF's price action around ex-dividend dates has shown an average return of approximately 0.5% over ±30 trading days, with a hit rate of 60% for positive returns. However, drawdowns of up to 3% were observed during periods of sector-specific volatility, such as regulatory shifts or earnings disappointments in key holdings. These findings underscore the importance of aligning dividend expectations with broader market conditions and sector dynamicsBacktest results for FHLC ex-dividend performance (2022–2025)^[18].

Sector Positioning: Aligning with Growth Drivers

FHLC's portfolio, comprising 323 holdingsFHLC Holdings List - Fidelity MSCI Health Care Index ETF^[9], is heavily weighted toward pharmaceuticals (Eli Lilly at 10.40%), medical devices (Johnson & Johnson at 7.32%), and health services (UnitedHealth Group at 5.46%)FHLC Holdings - Latest Fidelity MSCI Health Care Index ETF Assets^[10]. This composition aligns with key growth drivers in the healthcare sector, including the shift to non-acute care delivery and the expansion of health technology.

According to McKinsey, non-acute care settings—such as ambulatory surgery centers and home health services—are expected to grow significantly due to cost efficiency and patient preferencesWhat to expect in US healthcare in 2025 and beyond^[11]. Similarly, health services and technology (HST) are projected to expand at an 8% compound annual growth rate (CAGR) from 2023 to 2028, driven by software platforms and data analyticsWhat to expect in US healthcare in 2025 and beyond^[12]. FHLC's exposure to companies like UnitedHealth Group and Abbott LaboratoriesFHLC Holdings - Latest Fidelity MSCI Health Care Index ETF Assets^[13] positions it to benefit from these trends.

Specialty pharmacy services, another high-growth segment, are also gaining traction. With rising demand for specialty drugs and new therapies in oncology and rare diseasesHealth care sector outlook 2025 | Health care stocks^[14], FHLC's diversified portfolio captures this potential through holdings in pharmaceutical giants and ancillary service providers. However, the ETF's lack of explicit ESG ratingsFHLC – Sustainability – Fidelity MSCI Health Care ETF | Morningstar^[15] may concern investors prioritizing sustainability, despite its indirect alignment with innovation-driven growth.

Risks and Considerations

While FHLC's sector alignment is compelling, its non-diversified structure—concentrating 99.63% of assets in healthcareFHLC Holdings - Latest Fidelity MSCI Health Care Index ETF Assets^[16]—exposes it to sector-specific risks. Regulatory shifts, reimbursement pressures, and margin compression in segments like general acute care could weigh on performanceWhat to expect in US healthcare in 2025 and beyond^[17]. Additionally, the absence of a fixed payout ratio means dividends may fluctuate with market conditions, challenging yield sustainability during downturns.

Conclusion: A Strategic Bet on Healthcare's Future

FHLC's latest dividend and its alignment with healthcare's evolving landscape position it as a strategic investment for long-term growth. The ETF's exposure to innovation-driven sub-sectors—health tech, specialty pharmacy, and non-acute care—mirrors industry tailwinds, while its moderate yield offers income potential. However, investors must weigh the sector's concentration risks and variable dividend structure against the fund's growth prospects. For those comfortable with these trade-offs, FHLC represents a compelling vehicle to capitalize on the healthcare sector's transformative trajectory.