The Vanguard Group is one of the largest mutual fund groups in the world, best known for its broad offering of low-cost funds. The $3 trillion fund group is not owned by a corporate entity with profit responsibilities. Instead, it is owned by its more than 200 funds with the responsibility to pass on all profits to the funds' shareholders in the form of lower costs. Even its actively managed funds can offer the lowest expense ratios in the industry.

Among its more successful actively managed sector funds is the Vanguard Health Care Inv (VGHCX), which has been generating steady returns for more than 30 years. The fund has earned a gold Morningstar analyst rating for its experienced management team, its strong performance record and its low costs. 

Investment Objective

The fund is designed to offer investors low-cost exposure to various segments of the health care industry. Its objective is to achieve capital appreciation by investing in domestic and foreign companies engaged in pharmaceuticals, medical supplies and research. The fund is more geographically diverse than most of its peers and tends to focus on larger, more established companies using a value-driven approach to selecting investments.

Investment Management

The Vanguard Health Care Inv is one of many Vanguard funds that utilizes the Wellington Management Group as a subadvisor. Jean M. Hynes is a senior vice president, managing partner and global industry analyst at Wellington Management, and she has advised the Health Care Fund since 2008. She earned her bachelor's degree in economics from Wellesley College in 1991 and has been with Wellington Management ever since. She is a chartered financial analyst (CFA) charterholder.

Investment Portfolio

As of June 30, 2016, the fund has $48.6 billion in assets under management (AUM) spread across 71 holdings. The portfolio is heavily weighted towards pharmaceuticals with smaller weightings in health care equipment, medical technology and managed health care companies. Since taking over as the portfolio manager, Hynes has expanded the holdings to include more foreign companies and smaller growth companies. Among the fund's top holdings are Merck & Company, Inc. (NYSE: MRK), Bristol-Myers Squibb Company (NYSE: BMY), Allergan plc (NYSE: AGN), UnitedHealth Group, Inc. (NYSE: UNH) and Eli Lilly & Company (NYSE: LLY). Hynes keeps the fund's turnover rate fairly low at about 20%.

Investment Performance

Although it has rarely been a top-tier fund in its category, the Vanguard Health Care Inv has produced steady returns over its history, often outperforming the S&P 500 in down market cycles. Its 10-year return is 11.21%, which means a $10,000 investment would have grown to $28,934. The fund returned 21.03% over the last three years and 18.52% over the last five years. Its expense ratio of 0.34% is one of the lowest in its category.

Vanguard Health Care Inv’s Role in a Portfolio

The Vanguard Health Care Inv is a sector fund, which means that it focuses narrowly on one particular sector of the economy. Sector funds should play a specialty role in a portfolio, giving it slightly more exposure to a sector that the investor thinks will provide greater returns or add more stability to the overall portfolio. The Vanguard Health Care Inv is best used as a portfolio supplement to ward off volatility and reduce downside risk during down market cycles. This mutual fund is more diversified in larger stocks than other funds in its category, and it has a track record of lower volatility, which could allow for a larger role in the portfolio for investors who particularly like the health care sector.

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.