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The overall demand for new innovative medical products and services has continued to rise due to an ageing population.  This increase in demand for new drugs, therapies, and medical instruments is expected to be a long term growth driver for the Healthcare sector.  Innovations by medical devices companies, drug makers, and improvements in new technology have been the driving force behind the Healthcare sector over the past several quarters. The sector’s participants typically have a solid balance sheet, improving revenues, and tend to return cash to shareholders via dividends.  

The debate about the future of the Affordable Care Act still exists, and is currently acting as a headwind, but the overall view of the sector is that it is undervalued.  Further, both the biotech and pharmaceutical industries ability to innovate with new drugs and therapies has enabled them to generate sustainable cash-flows which makes them attractive investments.  

Finding the Righ Funds  

To capitalize on the growing healthcare sector, we utilized the Zacks mutual fund screener to identify the best funds with specific characteristics.  First, the fund had to have a Zacks Rank #1 (Strong Buy) or #2 (Buy) rating.  Second, they had to have an expense ratio beow 1.2% with no load fees Third the fund had to have significant exposure to stocks in the healthcare sector.  Lastly, they had to have a history of success with a 1 year total return above +15%.

The Picks

Delaware Healthcare I (DLHIX - Free Report) , a Zacks Rank #1 (Strong Buy) seeks maximum long-term capital growth through capital appreciation. Normally, the Fund will invest at least 80% of its assets in the equity securities of healthcare companies, meaning companies that develop, produce or distribute products or services.

Cost Specifics: There is no minimal investment, it has a 0.85% management fee with a total expense ratio of 1.13%.  

Performance and Management: YTD return +30.5%, 1 year return +24.5%, 3 year return +12.7%, and 5 year return +20.6%.  The fund is managed by Liu-Er Chen, who is both a CFA, and M.D. and holds the title of SVP.  Mr. Chen also has a M.B.A. in management from Columbia Business School.

Top Holdings: As of the most recent filings, the top five positions were held in MorphoSys AG, Chugan Pharma, Amgen, Eli Lilly and Sanofi SA.  

Fidelity Select Healthcare (FSPHX - Free Report) , a Zacks Rank #2 (Buy) seeks capital appreciation. The fund normally invests its 80% of assets in common stocks of companies principally engaged in the design, manufacture, or sale of products or services used for or in connection with health care or medicine. Dividends and capital gains are declared in April and December every year.

Cost Specifics: There is a $2,500 minimal investment, it has a 0.55% management fee with a total expense ratio of 0.73%.  

Performance and Management: YTD return +25.8%, 1 year return +15.3%, 3 year return +9.0%, and 5 year return +19.7%.  The fund is co-managed by Justin Segalini, and Eddie Yoon.  

Top Holdings: As of the most recent filings, the top five positions were held in Amgen, UnitedHealth Group, Allergan, Boston Scientific, and Becton Dickinson and Co.  

Hartford Healthcare Fund HLS IA (HIAHX - Free Report) , a Zacks Rank #2 (Buy) is a stock fund that invests in health care, a sector that is experiencing innovations and breakthroughs across multiple subsectors. The fund’s objective seeks long-term growth of capital.  

Cost Specifics: There is no minimal investment, it has a 0.84% management fee with a total expense ratio of 0.89%.  

Performance and Management: YTD return +24.1%, 1 year return +18.1%, 3 year return +12.9%, and 5 year return +19.7%.  The fund is managed by Jean Hynes, CFA Senior Managing Director, who holds a BA in economics from Wellesley College.  

Top Holdings: As of the most recent filings, the top five positions were held in UnitedHealth Group, Medtronic, Bristol-Myers Squibb, Celgene Corp, and Allergan.  

Prudential Jennison Health Sciences Fund (PHSZX - Free Report) , a Zacks Rank #2 (Buy), seeks long-term capital appreciation. The Fund invests primarily in equity-related securities of U.S. firms engaged in the following industries: hospitals, nursing and residential care, health and medical insurance carriers, pharmaceutical and medicine companies, and medical equipment firms.

Cost Specifics: There is no minimal investment, it has a 0.72% management fee with a total expense ratio of 0.86%.  

Performance and Management: YTD return +28.8%, 1 year return +21.6%, 3 year return +10.6%, and 5 year return +18.6%.  The fund is co-managed by David Chan and Debra Netschert.  David holds a CFA, and is the managing director.  He also holds a M.B.A. from Columbia University.  Debra is a managing director who holds a MS from Boston University.  

Top Holdings: As of the most recent filings, the top five positions were held in UnitedHealth Group, Medtronic, Bristol-Myers Squibb, Celgene Corp, and Allergan.



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