by Kyle Woodley | July 24, 2012 1:35 pm
Since the Affordable Care Act got the green light from the Supreme Court, the markets have had a few weeks to mull the potential effects on health care stocks. And while there’s plenty of hemming and hawing, some winners, some losers, one thing stands true for just about every investor: You want in on health care.
As colleague Alyssa Oursler points out, a number of demographic trends play right into health-related stocks’ hands. Baby boomers are … well, they’re booming. Half of us are getting too fat, and the other half are running in the opposite direction. All that means pills will be popped, hospitals will be staffed and insurance companies will continue to duck your calls about claims.
Of course, if all you have is a 401k to play with — or you just prefer to protect yourself with a bundle of holdings vs. picking and choosing — there’s a gaggle of mutual funds you can use to hit just about every angle of health care, or the whole field itself. Here’s a look at five such health care mutual funds to buy:
Vanguard Health Care (MUTF:VGHCX) is a perennial winner that has had to shutter its doors several times because of heavy inflows. But those doors are open once more, and investors have the chance to get in on a low-price, strong performer.
Half of VGHCX’s 80-plus holdings are dedicated to pharmaceuticals, with heavy weightings given to stocks like Merck & Co. (NYSE:MRK), Pfizer (NYSE:PFE) and Forest Laboratories (NYSE:FRX). VGHCX also throws about 15% of its weight behind managed care — UnitedHealth Group (NYSE:UNH) is the fund’s second-largest holding — and about 10% into biotech, with Amgen (NASDAQ:AMGN) the fund’s sixth-largest holding.
Manager Edward Owens has been at the helm since Vanguard Health Care’s inception in 1984 and has led the fund to 16% annual gains. The past year hasn’t been as glamorous, though VGHCX’s 6% gains still have outperformed a flat S&P 500. Also appealing: the fund’s four-star Morningstar rating, a cellar-dwelling 8% turnover ratio and a screaming deal in expenses at just 0.35%. Minimum investment is $3,000.
If you’re not starting out with a ton of money, the Schwab Health Care Fund (MUTF:SWHFX) can get you health care mutual fund exposure with a minimum investment of just $100.
Like Vanguard Health Care, about half of SWHFX is invested in pharmaceuticals, with top holdings Merck, Bristol-Myers Squibb (NYSE:BMY) and Pfizer (each above 4%) making up a veritable Who’s Who of Big Pharma. It also has double-digits weightings in biotech, health care providers and equipment and supplies.
Managers Larry Mano and Paul Alan Davis have led Schwab Health Care to 15% annualized gains in the past three years, and SWHFX is up nearly 10% year-to-date, earning the fund its own four-star rating. Fees also come to a reasonable 0.81%, and a low 24% turnover rate shouldn’t weigh on returns, either.
The T. Rowe Health Sciences Fund (MUTF:PRHSX) is a heavily diversified health care mutual fund (it holds 221 securities) with a slight lean toward biotech stocks at about 33% of net assets. Still, services come in around 29%, pharma at 20% and products and devices at around 14%, so you’re still getting healthy doses of the major industries.
The average market cap of PRHSX’s holdings is only around $7 billion because the fund relies on numerous small and midsize companies to help fuel its growth. Alexion Pharmaceuticals (NASDAQ:ALXN) makes up a whopping 7.5% of the portfolio — the next biggest stock holdings are Catamaran (NASDAQ:CTRX) at just under 3% and Valeant Pharmaceuticals (NYSE:VRX) at 2.6%.
PRHSX has averaged 13% annual returns since its inception in 1995. Kris Jenner has been running the fund since 2000 and has racked up double-digit gains in the three-, five- and 10-year metrics. This year has been golden for PRHSX, with the fund up almost 25% since Jan. 1, earning a five-star rating. While not as exaggerated as Vanguard, the fund’s 23.3% turnover and 0.82% in expenses are low. PRHSX requires a $2,500 minimum investment.
Of course, if you’re really itching to go full-bore into the risky (but potentially high-reward) biotech sector, the Rydex Biotechnology Fund (MUTF:RYOIX) — now under the Guggeheim Investments — can scratch.
About 90% of RYOIX’s holdings are dedicated to biotechs, with hefty weightings going to Amgen, Gilead Sciences (NASDAQ:GILD), Biogen Idec (NASDAQ:BIIB), Celgene (NASDAQ:CELG) and Alexion. The rest of the fund’s holdings are in life sciences tools and services companies — for instance, Life Technologies (NASDAQ:LIFE), which provides everything from lab equipment to cellular analysis systems, and Bio-Rad Laboratories (NYSE:BIO), which has product and service offerings for both life sciences and clinical diagnostics.
Expenses are a little hefty at 1.36%, and the management team definitely relies on trading to make a buck, with turnover of more than 300%. Also important to note: It has a paltry $190 million in assets, dwarfed by the multibillion-dollar babies mentioned above. Still, this four-star fund has averaged 10% gains since 1998, and it has had a great run out of the recession with 20%-plus annual returns, so the price might be right. Rydex also requires a $2,500 minimum investment.
At least as far as holdings go, consider Fidelity Select Medical Delivery Portfolio (MUTF:FSHCX) to be life outside the fast lane.
FSHCX invests in more grounded businesses, such as health insurance providers, pharmacy benefit managers and hospital management. However, the 50-stock fund does stand out as top-heavy. More than 40% of its weight is held in the top three stocks — health benefits firms UnitedHealth Group and WellPoint (NYSE:WLP), and PHM Express Scripts (NASDAQ:ESRX) — while 72% of the fund’s assets are held in the top 10.
Fees are a low 0.84%, and minimum investment is a reasonable $2,500. The one red flag, however, is that FSHCX is under new management as of this month. That’s not to suggest the fund is doomed — new manager Steven Bullock also has run the Fidelity Select Industrial Equipment Portfolio (MUTF:FSCGX) since 2010 — but it does mean you should monitor Medical Delivery to see if Bullock took notes from the guy who helped oversee 20% gains since 2009.
Kyle Woodley is the Assistant Editor of InvestorPlace.com. As of this writing, he did not hold a position in any of the aforementioned securities. Follow him on Twitter at @KyleWoodley.
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