3 Healthcare Mutual Funds to Consider Amid Sector Strength

Over the past six months, the healthcare sector on Wall Street has delivered notable gains. The State Street Health Care Select Sector SPDR ETF (XLV), a key benchmark for U.S. healthcare, has advanced significantly, reflecting broad strength across pharmaceuticals, managed care, medical technology and biotech stocks. XLV has climbed 16.6% over this six-month span ending Feb. 17, underscoring renewed investor interest in the sector’s earnings stability and defensive characteristics.

The healthcare sector has performed well in this period due to a combination of defensive appeal, earnings resilience and renewed innovation momentum. Investors rotated into healthcare as market volatility increased, favoring its stable cash flows and relatively predictable demand. Large pharmaceutical and managed care companies delivered steady results, while biotechnology stocks benefited from positive clinical updates and merger activity. Additionally, easing concerns around policy and drug pricing helped lift sentiment. With demographic trends supporting long-term demand and balance sheets remaining strong, healthcare emerged as a dependable growth area during an otherwise uneven market environment.

This sector performance has had a diverse impact on mutual funds focused on healthcare equities. Actively managed healthcare mutual funds show a wide range of results, tied closely to stock selection, sector weighting and management strategy. Similarly, other share classes of healthcare-focused mutual funds have demonstrated impressive performance.

Hence, astute investors might choose to bet on healthcare mutual funds at present. Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Our Picks

We have thus selected three such healthcare mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy), 2 (Buy), have positive three-year and five-year annualized returns, minimum initial investments within $5000, and carry a low expense ratio.

Fidelity Advisor Biotechnology Fund FBTIX invests primarily in common stocks of biotechnology companies involved in research, development, manufacturing and distribution of biotech products and services. It selects domestic and foreign issuers using fundamental analysis and operates as a non-diversified fund.

Eirene Kontopoulos has been one of the lead managers of FBTIX since July 2018. The fund has 16.5% of its portfolio invested in AbbVie, 7.6% in Alnylam and 5.5% in Gilead Sciences.

FBTIX’s 3-year and 5-year annualized returns are 18% and 8.1%, respectively. Its net expense ratio is 0.71%. FBTIX has a Zacks Mutual Fund Rank #1. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

PGIM Jennison Health Sciences PHLAX seeks long-term capital appreciation by investing primarily in equity and equity-related securities of companies in the health sciences sector, including pharmaceuticals, biotechnology, medical devices, healthcare services and other businesses deriving significant revenue from healthcare operations.

Debra Netschert has been the lead manager of PHLAX since January 2015. The fund has 16.5% of its portfolio invested in Eli Lilly, 5% in Danaher and 4.6% in Argenx.

PHLAX’s 3-year and 5-year annualized returns are 12.5% and 6.2%, respectively. Its net expense ratio is 1.15%. PHLAX has a Zacks Mutual Fund Rank #2.

Fidelity Select Health Care FSPHX primarily invests in common stocks of domestic and international companies involved in healthcare or medical products and services. It selects investments using fundamental analysis, evaluating financial strength, industry standing and broader market conditions, and follows a non-diversified investment approach.

Edward Yoon has been the lead manager of FSPHX since October 2008. The fund has 6.5% of its portfolio invested in Boston Scientific, 6.5% in Eli Lilly and 6.3% in Danaher.

FSPHX’s 3-year and 5-year annualized returns are 6.8% and 3.6%, respectively. Its net expense ratio is 0.62%. FSPHX has a Zacks Mutual Fund Rank #1.

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