Quick! Which sector has smashed the S&P 500 Index in the past four calendar years and has a healthy start to 2015?
This story’s headline gave you the answer, but I’ll expand: Healthcare stocks, as a collective whole, have been among the top equity sector leaders for years and this leadership looks to continue for the foreseeable future.
For this reason, the best health sector funds have had a consistent presence in my client portfolios for at least the past decade and I don’t plan to dump them anytime soon.
Whether you are looking for a short-term defensive play, a long-term means of leveraging an aging population, or a good way to add diversity and strength to a portfolio, health sector funds can be a smart investment choice.
Here are three of the best mutual funds that invest in healthcare stocks.
Best Mutual Funds for Healthcare Stocks: T. Rowe Price Health Sciences Fund (PRHSX)
I’ve been recommending the T. Rowe Price Health Sciences Fund (PRHSX) to clients for more than a decade and I don’t foresee an end to that advice for the foreseeable future.
A $10,000 investment in PRHSX 10 years ago would be worth over $50,000 today, whereas the same investment in the S&P 500 Index would be worth less than $21,000.
For short-term perspective, PRHSX is already up 2.8% in 2015, whereas the S&P 500 is down -1.7%.
The largest parts of the success for T. Rowe Price Health Sciences is the combination of good management and a sector that benefits from the combination of an aging population and advances in technology.
Although lead manager Taymour R. Tamaddon has only been at the helm for just less than two years, most of the remaining managers and analysts on the team have been there an average of 10 years or more.
Top holdings include biotechnology companies such as Gilead Sciences, Inc, (GILD), pharmaceutical firms such as Biogen Idec Inc (BIIB), and managed-care companies such as UnitedHealth Group Inc. (UNH).
The expense ratio for PRHSX is low at 0.79% and the minimum initial purchase is $2,500.
Best Mutual Funds for Healthcare Stocks: Fidelity Select Health Care Portfolio (FSPHX)
Another top-notch mutual fund investing in healthcare stocks is Fidelity Select Health Care Portfolio (FSPHX).
This outstanding fund has a rich history, starting with its inception date going all the way back to 1981, which makes Fidelity Select Health Care Portfolio the oldest health sector mutual fund still available to investors today.
Past performance is also outstanding with returns in nine of the last 10 years beating the average health sector fund and ranks in seven of those years in the top third or higher.
The expense ratio for FSPHX is a cheap 0.76% and the minimum initial purchase is $2,500.
Best Mutual Funds for Healthcare Stocks: Janus Global Life Sciences Fund Class T (JAGLX)
Janus Global Life Sciences Fund Class T (JAGLX) was one of the best healthcare sector funds in 2014 and if its extended performance history says anything about the fund’s future prospects, JAGLX should be a consideration for your portfolio.
To elaborate on performance, JAGLX beat 96% of health sector funds in 2014 and performance ranks for three-, five- and 10-year returns are all in the top third among category peers.
Making the future performance potential look bright is that the same winning management team that put those impressive stats has been in place for more than seven years.
The expense ratio for JAGLX is below average for the category at 0.92% and the minimum initial purchase is $2,500.
As of this writing, Kent Thune’s firm held positions in PRHSX in client accounts under his firm’s management. Under no circumstances does this information represent a recommendation to buy or sell securities.
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