While questions about the future of U.S. healthcare remain in play, healthcare stocks continue to have a positive outlook. Perhaps this is because the demand for health services continues to rise and most healthcare companies are sitting on balance sheets flush with cash and boasting strong financials.
All things considered, now might be the right time to increase your exposure to the healthcare sector. Here is a look at some of the healthcare mutual funds that have held up this year, despite broad economic challenges.
All figures are current as of December 2020.
- While some of the developments in the healthcare industry might make investors a bit wary, select stocks and mutual funds in the sector offer a buying opportunity.
- Standouts include the following mutual funds: Fidelity Select Medical Equipment and Systems Portfolio, Vanguard Health Care Fund, T Rowe Price Health Sciences Fund, and BlackRock Health Sciences Opportunities Portfolio.
- All of the mutual funds featured have posted increases between 10% and 30% in 2020, despite ongoing questions about the future of healthcare in the U.S.
1. Fidelity Select Medical Equipment and Systems Portfolio (FSMEX)
- Issuer: Fidelity
- Total Net Assets: $7.4 billion
- Expense Ratio: 0.71%
- 2020 YTD Performance: 30.52%
This fund invests in companies involved in the research and development (R&D), manufacturing, and sale of medical devices and equipment, primarily in the U.S. (about 95 % of the fund's portfolio is domestic). Fund manager Eddie Yoon sees pockets of opportunity in the smart device market and other innovative processes that could drive future returns.
The fund has strongly outperformed both the MSCI U.S. IMI Health Care Equipment & Supplies Index and even the S&P 500 with a 1-year total return of 42.51%. Three-year and five-year annualized returns are 24.97% and 22.14%, respectively. No minimum investment is required.
The percentage increase for the S&P 500 healthcare sector in 2019; the index consists of 61 stocks, with Johnson & Johnson, UnitedHealth Group, and Merck & Co. the three biggest constituents by market cap.
2. Vanguard Health Care Fund (VGHCX)
- Issuer: Vanguard
- Total Net Assets: $46 billion
- Expense Ratio: 0.32%
- 2020 YTD Performance: 11.32%
This massive Vanguard fund is also available as Admiral-class shares (minimum investment $50,000 compared with $3,000 for Investor-class shares). An actively managed fund, VGHCX offers low-cost, broad exposure to the global healthcare industry, including pharmaceuticals, medical equipment and supplies, and R&D. There are currently 88 equities in the fund's portfolio, which is heavily weighted toward pharmaceuticals (42%).
This is a mature mutual fund – since its inception in 1984, the fund has delivered nearly 16.15% average annualized returns. The 1-year, 3-year, and 5-year total returns are 22.20%, 12.20%, and 9.09%, respectively.
3. T Rowe Price Health Sciences Fund (PRHSX)
- Issuer: T. Rowe Price
- Total Net Assets: $16.4 billion
- Expense Ratio: 0.76%
- 2020 YTD Performance: 22.60%
This is a long-term growth fund that invests primarily in mid and large caps involved in R&D, production, and distribution of healthcare and life science-related products and services. The fund has 163 equities in its portfolio, with biotechnology (37.4%), healthcare services (19.1%), and products and devices (18.9%) the largest sectors. The fund has a fairly low 38.8% turnover rate.
Since its inception in 1995, the fund has delivered 14.56% average annualized returns. There is a $2,500 minimum investment required. The 1-year, 3-year, and 5-year total returns are 36.73%, 17.42%, and 13.47%, respectively.
4. BlackRock Health Sciences Opportunities Portfolio; Investor A (SHSAX)
- Issuer: BlackRock
- Total Net Assets: $10.1 billion
- Expense Ratio: 1.13%
- 2020 YTD Performance: 14.29%
This fund's benchmark index is the Russell 3000 Healthcare Index – it currently has 113 equities in its portfolio. Top holdings include UnitedHealth Group Incorporated (UNH), Medtronic (MDT), and Abbott (ABT). The portfolio diverges from its benchmark in that holdings are fairly evenly balanced between healthcare equipment and supplies and pharma/biotech.
The fund has consistently but narrowly outperformed its benchmark in each of the past 10 years. Since its inception in 1999, the fund has delivered 15.30% average annual returns. There is a minimum $1,000 initial investment required. The 1-year, 3-year, and 5-year total returns are 25.04%, 16.03%, and 13.16%, respectively.