Overlap, though not startling, between the two ETFs explains the almost lockstep performance by the pair. XLV and FXH have 44 holdings in common, according to AltaVista Research. Eighty percent of XLV’s 55 holdings are found in FXH while 59% of FXH’s constituents also reside in FXH.
Interestingly, some of the top-10 overlapping holdings between the two ETFs favor XLV because their soaring market values have made them larger constituents in XLV than FXH. There are several examples where XLV has at least double the weight to star health care stock that FXH has, including Gilead Sciences (NasdaqGS: GILD) and Amgen (NasdaqGS: AMGN).
XLV vs. FXH is just one example, but to be sure, there are other examples where two apparently similar ETFs can offer widely different returns. For example, the First Trust NYSE Arca Biotechnology Index Fund (NYSEArca: FBT) and the iShares Nasdaq Biotechnology ETF (NasdaqGM: IBB) have portfolio overlap of 44%, 500 basis points higher than, XLV and FXH share, according to AltaVista. However, FBT has outpaced IBB by 1,300 basis points this year. [Biotech ETFs Surge to new Highs]
Charts Courtesy: AltaVista Research