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The U.S. biotechnology sector finished 2018 on a high. As a matter of fact, health care was one of the only two sectors to have finished last year in the positive territory, with biotech as one of the best performing industries. A slew of strong earnings, a higher number of FDA approvals and continuous influx of foreign funds into biotech companies in America bolstered the industry’s performance.
Such trends are expected to continue. In fact, an even higher number of biotech firms are expected to go public in 2019. Under such broadly encouraging conditions, investing in mutual funds having significant exposure to biotech companies seems prudent.
Biotech Indexes and ETFs on a Tear
Biotech ETFs and indexes have had a bullish run in the markets in the year-to-date period. iShares Nasdaq Biotechnology ETF (IBB), SPDR S&P Biotech ETF (XBI), ProShares Ultra Nasdaq Biotechnology (BIB) and NASDAQ Biotechnology Index (NBI) have all rallied 13.2%, 14.5%, 27.8% and 12.7%, respectively.
Factors Which Will Boost Health Care
The majority of health care companies in the United States benefit from consistent cash inflow and notable profit margins. Greater technological investment and innovation to increase efficiency and lessen wastages are likely to bring down overall treatment costs and medical product prices.
Further, job prospects across the health care sector remain promising. 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.
Foreign Investment Breathe Life in U.S. Biotech
Silicon Valley and Cambridge, MA have primarily been the front-runners in providing the largest growth of innovation in the biotechnology sector in the United States. This also reflects on the fact that the majority of foreign as well as domestic investors in the space target these areas. This has not only resulted in innovation but has also created newer jobs in the field and generated handsome dividends for investors.
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. This trend is largely expected to continue through 2019.
Venture Investment and IPOs to Propel Biotech in 2019
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. Meanwhile, Series A investments across the biopharma sector witnessed an increase of 56%, led by oncology and platform firms. Analysts expect venture money pouring into health care to reach to about $8 billion in 2019.
3 Best Choices
We have, thus, selected three biotechnology mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong 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 Biotechnology (FBIOX - Free Report) invests the majority of its assets in common stocks of companies principally engaged in the research, development and distribution of various biotechnological products. Biotech firms including Regeneron Pharmaceuticals Inc., Alexion Pharmaceuticals, Inc., Amgen Inc. and Biogen Inc. are some of the fund’s major holdings.
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.
FBIOXhas an annual expense ratio of 0.73%, which is below the category average of 1.28%. The fund has five-year annualized returns of 6%.
Schwab Health Care (SWHFX - Free Report) seeks long-term capital growth by primarily investing the majority of its assets in securities issued by companies in the health care space. Biotech companies including Amgen, Biogen and Gilead Sciences are some of the fund’s top holdings.
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.
SWHFXhas an annual expense ratio of 0.80%, which is below the category average of 1.28%. The fund has three and five-year returns of 6.1% and 9.5%, respectively.
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. Biotech companies including Biogen and Bristol-Myers Squibb Company are two of the fund’s top holdings.
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 an annual expense ratio of 0.38%, which is below the category average of 1.28%. The fund has three and five-year returns of 3.3% and 9.8%, respectively.
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3 Biotech Mutual Funds 2019
The U.S. biotechnology sector finished 2018 on a high. As a matter of fact, health care was one of the only two sectors to have finished last year in the positive territory, with biotech as one of the best performing industries. A slew of strong earnings, a higher number of FDA approvals and continuous influx of foreign funds into biotech companies in America bolstered the industry’s performance.
Such trends are expected to continue. In fact, an even higher number of biotech firms are expected to go public in 2019. Under such broadly encouraging conditions, investing in mutual funds having significant exposure to biotech companies seems prudent.
Biotech Indexes and ETFs on a Tear
Biotech ETFs and indexes have had a bullish run in the markets in the year-to-date period. iShares Nasdaq Biotechnology ETF (IBB), SPDR S&P Biotech ETF (XBI), ProShares Ultra Nasdaq Biotechnology (BIB) and NASDAQ Biotechnology Index (NBI) have all rallied 13.2%, 14.5%, 27.8% and 12.7%, respectively.
Factors Which Will Boost Health Care
The majority of health care companies in the United States benefit from consistent cash inflow and notable profit margins. Greater technological investment and innovation to increase efficiency and lessen wastages are likely to bring down overall treatment costs and medical product prices.
Further, job prospects across the health care sector remain promising. 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.
Foreign Investment Breathe Life in U.S. Biotech
Silicon Valley and Cambridge, MA have primarily been the front-runners in providing the largest growth of innovation in the biotechnology sector in the United States. This also reflects on the fact that the majority of foreign as well as domestic investors in the space target these areas. This has not only resulted in innovation but has also created newer jobs in the field and generated handsome dividends for investors.
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. This trend is largely expected to continue through 2019.
Venture Investment and IPOs to Propel Biotech in 2019
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. Meanwhile, Series A investments across the biopharma sector witnessed an increase of 56%, led by oncology and platform firms. Analysts expect venture money pouring into health care to reach to about $8 billion in 2019.
3 Best Choices
We have, thus, selected three biotechnology mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong 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 Biotechnology (FBIOX - Free Report) invests the majority of its assets in common stocks of companies principally engaged in the research, development and distribution of various biotechnological products. Biotech firms including Regeneron Pharmaceuticals Inc., Alexion Pharmaceuticals, Inc., Amgen Inc. and Biogen Inc. are some of the fund’s major holdings.
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.
FBIOXhas an annual expense ratio of 0.73%, which is below the category average of 1.28%. The fund has five-year annualized returns of 6%.
Schwab Health Care (SWHFX - Free Report) seeks long-term capital growth by primarily investing the majority of its assets in securities issued by companies in the health care space. Biotech companies including Amgen, Biogen and Gilead Sciences are some of the fund’s top holdings.
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.
SWHFXhas an annual expense ratio of 0.80%, which is below the category average of 1.28%. The fund has three and five-year returns of 6.1% and 9.5%, respectively.
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. Biotech companies including Biogen and Bristol-Myers Squibb Company are two of the fund’s top holdings.
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 an annual expense ratio of 0.38%, which is below the category average of 1.28%. 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 >>