In the budget battles on Capitol Hill, a big hot-button issue is healthcare. It represents a substantial amount of government expenditures – and the growth rate is higher than the overall economy.
Besides the retiring Baby Boomers, there are some other major forces at work. For example, obesity is becoming a big problem, which is leading to higher rates of disease. At the same time, there continues to be much growth in cutting-edge medical procedures – which are often expensive. Consider that since the 1970s, healthcare expenditures have doubled as a percentage of GDP, reaching about 16%.
In light of these trends, there should be many winners in the healthcare sector. And one way to participate is through mutual funds.
So let’s take a look at some of the top offerings among healthcare funds right now:
T. Rowe Price Health Sciences (PRHSX)
Even though the T. Rowe Price Health Sciences Fund (MUTF: PRHSX) is a one of the larger offerings in its sector, it still tries to focus on smaller growth companies. It certainly helps that the portfolio manager — Kris Jenner – has a background as a physician. He was also a biotech analyst. In other words, Kris has a good sense of the latest trends and technologies.
The fund also has a reasonable expense ratio, which is 0.84% and the turnover is also a low 36.4%. Basically, Kris tends to take a buy-and-hold approach to investments.
Eaton Vance Worldwide Health Sciences (ETHSX)
Even with the positive long-term trends, healthcare stocks can be quite volatile. There are extremely tough regulatory requirements, which can make it tough to get a drug to market. And as seen with the impact of Obama-care, there is still much uncertainty in the industry.
In the case of the Eaton Vance Worldwide Health Sciences (MUTF: ETHSX), it works hard to avoid the problems. Because of this, the portfolio is composed of many large companies. Some of the top holdings include Novartis (NYSE: NVS), Mitsubishi Tanabe, Roche (PINK: RHHBY), Allergan (NYSE: AGN) and Pfizer (NYSE: PFE).
The fund also provides exposure to foreign markets. About 20.42% of the portfolio is in Europe and 17.12% in Asia.
Fidelity Select Health Care (FSPHX)
Drugmakers and biotech companies can generate substantial profits. They will get patent protection for their innovations, which provides a virtual monopoly.
But there is another opportunity in healthcare: information technology. Yes, this can be a way to help reduce overall costs.
So for Eddie Yoon, who is the portfolio manager of the Fidelity Select Health Care (MUTF: FSPHX), he tries to find these types of companies. One of the top holdings is McKesson (NYSE: MCK), which is a drug distributor as well as a software provider for services and patient care. And another major holding is Medco Health Solutions (NYSE: MHS), which is a pharmacy benefit manager.
BlackRock Health Sciences Opportunities (SHSAX)
To keep returns competitive, the portfolio manager of the BlackRock Health Sciences Opportunities (SHSAX), Erin Xie, is not afraid of fast trading. Keep in mind that the annual turnover ratio of the portfolio is a hefty 184.0%.
Essentially, Xie likes to concentrate on sectors of the healthcare industry that have the best prospects and momentum. As for now, the top holdings include Johnson & Johnson (NYSE: JNJ), Pfizer, Fresenius Medical Care (NYSE: FME) and Abbott Laboratories (NYSE: ABT).
Prudential Jennison Health Sciences (PHLAX)
When a small drug firm gets approval of a new drug, the stock price will often soar. And the gains will usually continue for some time. But it is far from easy to spot these types of companies.
Yet, in the case of David Chan, who manages Prudential Jennison Health Sciences (MUTF: PHLAX) fund, he has no fears in trying to find the next-big drug companies. True, the strategy can mean volatile returns. But over the long-haul, the gains can be strong.
For the past ten years, the fund has posted an annual average return of 10.6%.