Fidelity MSCI Health Care Index ETF (FHLC): A Steady Income Play in a Resilient Sector

The healthcare sector has long been a haven for investors seeking stability and growth, and the Fidelity MSCI Health Care Index ETF (FHLC) is positioned to capitalize on this dynamic. With a recent dividend announcement of $0.257 per share, a history of consistent increases, and exposure to a sector that combines innovation and necessity, FHLC offers a compelling blend of income potential and diversification. Here's why it deserves a closer look.

Dividend Growth: A Reliable Income Stream

FHLC's June 18, 2025 dividend declaration of $0.257 per share underscores its commitment to shareholder returns. This payout, set to distribute on June 24, follows two consecutive increases in 2024:
- A 3% boost in September 2024, raising the annual dividend from $0.92 to $0.95.
- A further increase to $0.99 annually in December 2024, marking a 4.2% rise.

These adjustments align with FHLC's 5.74% average dividend growth rate over the past three years, a trend that suggests management's focus on steadily increasing payouts. The current yield of 1.6% may not be the highest in the market, but it is bolstered by predictable distributions tied to a sector with strong cash flows.

Sector Exposure: A Play on Healthcare's Resilience

FHLC tracks the MSCI USA IMI Health Care 25/50 Index, which invests in U.S. healthcare companies across large and mid-cap stocks. This index provides broad exposure to pharma, biotech, medical devices, and managed care, sectors that benefit from aging populations, rising healthcare spending, and ongoing innovation.

The healthcare sector's defensive nature—less cyclical than other industries—has historically outperformed during economic downturns. FHLC's holdings include stalwarts like Gilead Sciences, AbbVie, and Johnson & Johnson, which dominate therapies for chronic conditions and aging demographics.

Cost Efficiency and Stable Management

FHLC's expense ratio of 0.07%—among the lowest for U.S. healthcare ETFs—gives it a significant edge. Passive management allows investors to avoid high fees typical of actively managed funds, ensuring more of their returns stay in their pockets.

While FHLC is a passive ETF, its management team offers stability. Portfolio Manager Jennifer Hsui, with over 12 years of tenure, and her team have maintained disciplined adherence to the index, minimizing tracking error. This consistency is critical for an ETF, where deviations from the benchmark can erode returns.

Investment Thesis: A Balanced Approach

FHLC's strengths—steady dividends, low costs, and exposure to a resilient sector—make it a strong candidate for investors seeking both income and capital appreciation. The healthcare sector's long-term growth drivers, including an aging global population and rising demand for chronic disease treatments, provide a tailwind.

While short-term volatility is possible—FHLC's 90-day performance has dipped slightly—its low financial distress risk (<9%) and index-tracking strategy mitigate downside risks. For those wary of overexposure to cyclical sectors, FHLC offers a defensive core holding.

Final Take: Buy for Income and Diversification

FHLC combines reliable dividends, sector-specific resilience, and cost efficiency into a single package. With its recent dividend hike and a track record of growth, it's a solid choice for income-focused investors. For those looking to diversify into healthcare without picking individual stocks, FHLC offers broad, low-cost access to an industry built to endure.

Recommendation: Consider FHLC as a core holding for a balanced portfolio. Pair it with other sectors to maintain diversification, but recognize its role as a steady income generator in a growing field.

Investors should always conduct their own research and consider their risk tolerance before making investment decisions.