In a market facing continued volatility over a long period of time, healthcare is a sector that usually does well. Investors, who adopt a risk-off attitude, bank on the defensive nature of the sector. The regular demand for healthcare services is not dependent on the peaks and troughs of a market, and hence, provides protection against market volatility. The sector also seems lucrative for investors looking for a steady cash flow, because pharmaceutical companies are known to offer regular dividends.
Health spending in the United States is projected to grow at an average annual rate of 5.4% for 2019-2028 and to reach $6.2 trillion by 2028. Even as the industry faces labor shortages and recessionary pressures in the post-pandemic world marked by a European war, it would grow at a higher rate than the overall economy.
There might be a shift toward government segments and institutions more than private players, with patients and customers trying to maximize the advantages of social security, but demand would not go down. Also, artificial intelligence is slated to revolutionize the sector in the areas of diagnosis, treatment, and monitoring of patients, eventually reducing costs and making the services affordable.
Healthcare has seen growth in the ETF market in 2023. The S&P 500 Select Sector SPDR for Healthcare (XLV) grew 4.1% over the past year as of Apr 30, 2023. In April itself, the sector grew 3.1% and is poised to grow throughout 2023. The sector may be off its pandemic period peak, but will remain resilient and continue to grow in the coming years. To give an idea, in 2021, the United States spent 18.3% of its GDP on healthcare.
Hence, astute investors should invest in 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).
We have thus selected four 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.
Schwab Health Care Fund SWHFX primarily invests in equity securities issued by healthcare companies. SWHFX usually invests the majority of its net assets in these securities. The healthcare sector includes pharmaceutical and biotech companies, healthcare facilities operations, medical product manufacturers and suppliers, medical providers, and medical services firms.
Wei Li has been the lead manager of SWHFX since June 2013. The fund has 5.5% of its portfolio invested in UnitedHealth Group, 4.9% in Merck, and 4.8% in Johnson & Johnson.
SWHFX’s 3-year and 5-year annualized returns are 10% and 9.9%, respectively. Its net expense ratio is 0.80% compared to the category average of 1.03%. SWHFX 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.
Putnam Global Health Care Fund PHSTX primarily invests in common stocks of large and mid-cap healthcare companies. PHSTX invests in companies that its advisors believe have favorable investment potential.
Michael Maguire has been the lead manager of PHSTX since November 2016. The fund has 9.4% of its portfolio invested in UnitedHealth Group, 6.6% in AstraZeneca, and 6.1% in Merck.
PHSTX’s 3-year and 5-year annualized returns are 10.1% and 11.2%, respectively. Its net expense ratio is 0.53% compared to the category average of 1.03%. PHSTX has a Zacks Mutual Fund Rank #2.
Janus Henderson Global Life Sciences Fund JNGLX primarily invests in equity securities issued by companies engaged in life sciences orientation.
Andrew Acker has been the lead manager of JNGLX since April 2007. The fund has 6.6% of its portfolio invested in UnitedHealth Group, 4.4% in AstraZeneca and 3.9% in AbbVie.
JNGLX’s 3-year and 5-year annualized returns are 11.3% and 11.7%, respectively. Its net expense ratio is 0.80% compared to the category average of 1.03%. JNGLX has a Zacks Mutual Fund Rank #1.
Vanguard Health Care Fund VGHCX primarily invests in stocks of companies principally engaged in the development, production, or distribution of products and services in the healthcare industry. VGHCX also invests a significant portion of its assets in foreign stocks.
Jean M. Hynes has been the lead manager of VGHCX since May 2008. The fund has 6.2% of its portfolio invested in UnitedHealth Group, 5.5% in Eli Lilly and 5.4% in AstraZeneca.
VGHCX’s 3-year and 5-year annualized returns are 10% and 10.9%, respectively. Its net expense ratio is 0.34% compared to the category average of 1.03%. VGHCX has a Zacks Mutual Fund Rank #1.
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