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The health care sector ended 2018 on a high. As a matter of fact, the Health Care Select Sector SPDR expanded 2.5% in 2018, emerging as one of the two sectors to end the year in the green. This can be attributed to a higher-than-usual number of approvals by the FDA and continued influx of funds into the sector.
Per a recent study, U.S. health care has caught the fancy of American and foreign venture capitalists alike. The implementation of artificial intelligence, machine learning, big data along with other technological advancements in health care could remarkably increase the sector’s proficiency, thus giving it a boost. It is hugely expected that such trends would continue in 2019. Under such encouraging conditions, investing in health care mutual funds seems prudent.
Venture Investment and IPOs to Propel Health Care
Chinese venture-capital funds have invested a whopping $1.4 billion in U.S. biotech and drug companies in the period between January through March last year. There were about 76 health care IPOs in 2018. Coming to the average returns, health care IPOs posted an average return of 8.9% on total proceeds worth $9.1 billion.
Although North American investors account for about 99% of the funding in Silicon Valley and Cambridge, foreign funds, particularly from China, have risen steadily. Furthermore, a surge in the size of biopharma deals and investment rounds has not only resulted in successful IPOs but also M&A exits.
Meanwhile, Series A investments across the biopharma sector witnessed an increase of 56%, led by oncology and platform firms. It is largely expected that this trend will continue across the health care sector in 2019. Analysts expect that venture money pouring into health care will reach to about $8 billion in 2019.
Economic Fundamentals to Remain Robust in 2019
The Federal Reserve estimated that the U.S. economy will grow 2.3% in 2019. Also, core PCE inflation rate has been projected to rise to 2% in 2019. Finally, the unemployment rate has been kept unchanged 3.5% for 2019.
Per the latest report by the Bureau of Labor Statistics (BLS), the health care sector witnessed a surge in jobs by as much as 50,000 last month. Ambulatory health care services and hospitals added the greatest number of jobs across the industry. The space added 346,000 jobs in 2018, which is significantly higher than 2018. This trend is most likely to continue this year.
Drug Pricing Issue Might Finally Be Resolved
One of the lingering issues plaguing the health care space has been that of drug pricing. The Republicans and Democrats have been trying to settle the issue and 2019 seems to be the year when an outcome can be expected.
As a matter of fact, the White House revealed a plan in October 2018 which aims at letting Medicare set the reimbursement rates for a few drugs administered in doctors' offices as well as hospital outpatient centers. This will be based on their cost in other countries. Such a move would significantly lower the drug prices.
3 Best Choices
We have, thus, selected three health care mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) that are poised to gain from such factors. Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.
We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Fidelity Select Portfolio Medical Technology And Devices Portfolio (FSMEX - Free Report) invests 80% of its assets in securities of companies engaged in manufacturing and distribution of medical devices and equipment. The fund invests in both U.S. and non-U.S. stocks.
This Zacks sector – Health product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
FSMEX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.75%, which is below the category average of 1.29%. The fund has three and five-year returns of 16.9% and 16.8%, respectively.
T. Rowe Price Health Sciences (PRHSX - Free Report) invests a major portion of its net assets in common stocks of companies involved in research, development, production, or distribution of products or services related to health care and life sciences. PRHSX may invest in companies of any size, however, the majority of its assets is invested in large and mid-capitalization companies.
This Sector – Health product has a history of positive total returns for more than 10 years. Specifically, the fund's returns over the one and five-year benchmarks are 5.1% and 11.6%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
PRHSX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.77%, which is below the category average of 1.29%.
Vanguard Specialized Portfolios Health Care Fund (VGHCX - Free Report) seeks long-term capital growth by investing in securities of companies that are engaged in production and distribution of products and services from the health care industry. The fund may invest about half of its assets in non-U.S. stocks.
This Zacks sector – Health product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
VGHCX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.38%, which is below the category average of 1.29%. The fund has three and five-year returns of 3.3% and 9.8%, respectively.
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3 Top Health Care Mutual Funds for 2019
The health care sector ended 2018 on a high. As a matter of fact, the Health Care Select Sector SPDR expanded 2.5% in 2018, emerging as one of the two sectors to end the year in the green. This can be attributed to a higher-than-usual number of approvals by the FDA and continued influx of funds into the sector.
Per a recent study, U.S. health care has caught the fancy of American and foreign venture capitalists alike. The implementation of artificial intelligence, machine learning, big data along with other technological advancements in health care could remarkably increase the sector’s proficiency, thus giving it a boost. It is hugely expected that such trends would continue in 2019. Under such encouraging conditions, investing in health care mutual funds seems prudent.
Venture Investment and IPOs to Propel Health Care
Chinese venture-capital funds have invested a whopping $1.4 billion in U.S. biotech and drug companies in the period between January through March last year. There were about 76 health care IPOs in 2018. Coming to the average returns, health care IPOs posted an average return of 8.9% on total proceeds worth $9.1 billion.
Although North American investors account for about 99% of the funding in Silicon Valley and Cambridge, foreign funds, particularly from China, have risen steadily. Furthermore, a surge in the size of biopharma deals and investment rounds has not only resulted in successful IPOs but also M&A exits.
Meanwhile, Series A investments across the biopharma sector witnessed an increase of 56%, led by oncology and platform firms. It is largely expected that this trend will continue across the health care sector in 2019. Analysts expect that venture money pouring into health care will reach to about $8 billion in 2019.
Economic Fundamentals to Remain Robust in 2019
The Federal Reserve estimated that the U.S. economy will grow 2.3% in 2019. Also, core PCE inflation rate has been projected to rise to 2% in 2019. Finally, the unemployment rate has been kept unchanged 3.5% for 2019.
Per the latest report by the Bureau of Labor Statistics (BLS), the health care sector witnessed a surge in jobs by as much as 50,000 last month. Ambulatory health care services and hospitals added the greatest number of jobs across the industry. The space added 346,000 jobs in 2018, which is significantly higher than 2018. This trend is most likely to continue this year.
Drug Pricing Issue Might Finally Be Resolved
One of the lingering issues plaguing the health care space has been that of drug pricing. The Republicans and Democrats have been trying to settle the issue and 2019 seems to be the year when an outcome can be expected.
As a matter of fact, the White House revealed a plan in October 2018 which aims at letting Medicare set the reimbursement rates for a few drugs administered in doctors' offices as well as hospital outpatient centers. This will be based on their cost in other countries. Such a move would significantly lower the drug prices.
3 Best Choices
We have, thus, selected three health care mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) that are poised to gain from such factors. Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.
We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Fidelity Select Portfolio Medical Technology And Devices Portfolio (FSMEX - Free Report) invests 80% of its assets in securities of companies engaged in manufacturing and distribution of medical devices and equipment. The fund invests in both U.S. and non-U.S. stocks.
This Zacks sector – Health product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
FSMEX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.75%, which is below the category average of 1.29%. The fund has three and five-year returns of 16.9% and 16.8%, respectively.
T. Rowe Price Health Sciences (PRHSX - Free Report) invests a major portion of its net assets in common stocks of companies involved in research, development, production, or distribution of products or services related to health care and life sciences. PRHSX may invest in companies of any size, however, the majority of its assets is invested in large and mid-capitalization companies.
This Sector – Health product has a history of positive total returns for more than 10 years. Specifically, the fund's returns over the one and five-year benchmarks are 5.1% and 11.6%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
PRHSX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.77%, which is below the category average of 1.29%.
Vanguard Specialized Portfolios Health Care Fund (VGHCX - Free Report) seeks long-term capital growth by investing in securities of companies that are engaged in production and distribution of products and services from the health care industry. The fund may invest about half of its assets in non-U.S. stocks.
This Zacks sector – Health product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
VGHCX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.38%, which is below the category average of 1.29%. The fund has three and five-year returns of 3.3% and 9.8%, respectively.
Want key mutual fund info delivered straight to your inbox?
Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>