Healthcare stocks have been beating broad market indices for more than 15 years and this dominance looks to continue for the foreseeable future. If you want to tap into the health sector, look no further than mutual funds.
When you combine the advancement of cutting edge science, the power of new technologies and the aging U.S. population, you come up with an environment for healthcare stocks with growth potential that rivals a Petri dish full of multiplying cells.
In 2015, the average mutual fund investing in healthcare stocks has a gain of nearly 15%, which is five times the 3% gain on the S&P 500. The 15-year average annualized return for health sector funds is 10.4% and the S&P 500’s return for the period is 4.5%.
Healthcare stocks also make for a smart defensive play now that the market is turning increasing volatile with increasing downside pressure. Therefore the health sector can be a smart short-term move, as well as a wise long-term one.
With that, I give you the three best mutual funds for investing in healthcare stocks:
3 Best Mutual Funds for Investing in Healthcare Stocks: Fidelity Select Biotechnology (FBIOX)
Load Fee: None
Expenses: 0.74%, or $74 annually for every $10,000 invested
Minimum Initial Investment: $2,500
If you’re looking for a health sector fund with a healthy dose of biotech stocks, Fidelity Select Biotechnology (FBIOX) is well worth a look.
FBIOX is actively-managed and the management team has an average tenure of more than 10 years. For a big picture view of their stock picking skills, the 10-year annualized return for FBIOX is a staggering 19.7%, which places the fund ahead of 99% of all other funds investing in healthcare stocks.
Year-to-date FBIOX is up 22.1%, which is ahead of 96% of health sector funds. While the management team deserves big kudos for their stock selection, they have been helped by a tailwind of big gains in biotechnology, which is a sub-sector of healthcare. The portfolio also has an aggressive blend of small-, mid- and large-cap stocks.
Top holdings include Gilead Sciences (GILD), Biogen (BIIB) and Celgene (CELG).
3 Best Mutual Funds for Investing in Healthcare Stocks: Vanguard Health Care (VGHCX)
Load Fee: None
Expenses: 0.34%
Minimum Initial Investment: $3,000
A combination of solid management and low expenses makes Vanguard Health Care (VGHCX) one of the best health sector funds you can buy.
Under the tutelage of the legendary and retired Vanguard Health Care manager Edward P. Owens, Jean M. Hynes, the manager since 2008, has picked up the torch of success. The 5-year annualized return under the watch of Hynes is a healthy 24.4%, which ranks significantly ahead of the average fund investing in healthcare stocks.
The performance success is significant especially because the VGHCX portfolio is not stuffed with biotechnology stocks, as are the more aggressive health sector funds with higher performance. Therefore VGHCX is a well-rounded long-term holding for investors looking for a diversified fund in the health sector.
Top holdings include Bristol-Myers Squibb (BMY), Actavis (ACT) and UnitedHealth Group (UNH).
3 Best Mutual Funds for Investing in Healthcare Stocks: Janus Global Life Sciences (JAGLX)
Load Fee: None
Expenses: 0.92%
Minimum Initial Investment: $2,500
Continuing upon the theme of well-managed low-cost mutual funds investing in healthcare stocks, Janus Global Life Sciences (JAGLX) fits the bill perfectly.
The Janus funds lineup has just a handful of outstanding mutual funds and JAGLX is in that elite list.
The JAGLX management team has been in place for eight years, which gives them full credit for the 5-year annualized return of 30.6%, which places it ahead of 79% of health sector funds. They also receive most of the credit for the 10-year return of 15.5%, which beats 72% of category peers.
The portfolio consists of roughly 25% non-U.S. stocks, hence the “global” name and objective. This enables a go-anywhere style that frees the management team to find compelling healthcare stocks around the world.
Top holdings include Johnson & Johnson (JNJ), Amgen (AMG) and Biogen (BIIB).
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities. His No. 1 holding is his privately held investment advisory firm. Under no circumstances does this information represent a recommendation to buy or sell securities.
