5 Healthcare Mutual Funds Riding the Medical Sectors Earnings Growth - Mutual Fund Commentary

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With most of the Q2 2014 filings in the books, the medical sector has posted the top year to date earnings growth out of all the 16 Zacks sectors.  The sector as a whole is showing 15.6% year over year earnings growth.   

Further, the medical sector posted very impressive year over year revenue growth as well; 12.3% for Q2 2014.  Further, more than 75% of the companies in the medical sector beat their earnings and revenue expectations this quarter. 

While the earnings and revenue numbers are very impressive, we are now looking towards the second half of 2014, and into 2015.  Currently, we expect the medical sector to post double digit earnings growth for 2014, and 2015; 12.9% for 2014, and 12.4% in 2015. 

On the Revenue front, the medical sector is expected to post double digit growth in 2014, and then see some pull back in 2015; 10.9% for 2014, and 5.2% for 2015. 

Due to the positive Q2 results, and future guidance, we believe a wise investor should look to some strongly performing Healthcare Mutual Funds to capture the sectors growth through 2015.  We utilized the Zacks Mutual Fund Ranking system to identify the best positioned and best performing healthcare funds. 

To better understand the Zacks Mutual Fund Ranking System, please click here

Top Healthcare Mutual Funds

Fidelity Select Health Care Fund ( FSPHX ) a Zacks Rank #1 (Strong Buy) is a balanced allocated fund, that holds about 48% of their position in the healthcare sector, with the remainder spread out multiple different industries including Tech, Finance, Industrial, and Services.  The fund is comprised of companies that are principally engaged in the design, manufacture, or sale of products or services used for or in connection with healthcare or medicine.  This gives the fund a broader spectrum of companies, and enables it to withstand headwinds more efficiently. 

The fund is heavy companies like, Actavis, Biogen, McKesson, Boston Scientific, and Agilent Technologies.  This fund as a minimum investment of $2,500, and is not front loaded (fees). 

Past Performance: 1 year 49.80%, 3 year 27.19%, 5 year 27.23%

Fidelity Select Pharmaceuticals ( FPHAX ) a Zacks Rank #1 (Strong Buy) is much heavier in the health sector, with just under 69% of the fund, than our previous recommendation.  This fund invests in companies that are engaged in the research, development, manufacture, and distribution of various biotechnological products, services, and processes.  This fund was opened in 2001, and has strong 10 year return: 13.81%, vs. S&P 500 10 year at 8.3%.

The fund is heavy Abbvie, Merk, Johnson & Johnson, Astrazeneca, and Bristol Myers.  The fund has a minimum investment of $2,500, and is not front loaded (fees). 

Past Performance: 1 year 39.26%, 3 year 22.77%, 5 year 24.14%

Fidelity Select Medical Equipment and Systems Portfolio ( FSMEX ) a Zacks Rank #1 (Strong Buy) is over weighted in the health sector, with at least 80% of their assets in common stocks of companies principally engaged in research, development, manufacture, distribution, supply, or sale of medical equipment and devices and related technologies.  Currently, the portfolio is just below 65% in health sector, with the remainder spread amongst Finance, Technology, Other, Retail trade, Services, and Industrial.  This fund was started in 1998, and has posted strong 10 year returns (+11.84%), which have outperformed the S&P 500 at 8.3%. 

The fund is heavy Covidien, Boston Scientific, Stryker Corp, Abbott Labs, and Medtronic.  The fund has a minimum investment of $2,500, and is not front loaded. 

Past Performance: 1 year 35.34%, 3 year 16.32%, 5 year 18.53%.

Icon Healthcare Fund ( ICHCX ) a Zacks Rank #1 (Strong Buy) is a more balanced healthcare mutual fund, with just under 32% of the fund in the health sector.  This fund diversifies itself with other sectors who are related to the healthcare sector, with large holdings in Other, Finance, Services, Retail trade, Industrial, and non-durable sectors.  This fund is relatively inexpensive to enter, with only $1,000 minimum initial investment, and zero front loaded fees.  In the past 10 years, the fund has outperformed the S&P 500 by posting returns of 10.75% vs 8.3%.

This fund has the greatest percentage of their fund in Johnson & Johnson, Gilead, Celgene, Cigna, and UnitedHealth group.

Past Performance: 1 year 30.11%, 3 year 20.50%, 5 year 20.32%.

Fidelity Select Medical Delivery ( FSHCX ) a Zacks Rank #1 (Strong Buy) who's objective is to seek out capital appreciation.  The fund normally invests at least 80% of assets in common stocks of companies principally engaged in the ownership or management of hospitals, nursing homes, health maintenance organizations, and other companies specializing in the delivery of health care services.  The fund offers dividends and capital gains twice a year in April and December.   This fund was started in 1986, and has outperformed the S&P 500 over the past 10 years, 15.73% vs. 8.3%. 

The fund is heavy UnitedHealth Group, Express Scripts, McKesson, Cardinal Health, and Cigna Corp.  FSHCX has a minimum investment of $2,500, and is not front loaded. 

Past Performance: 1 year 25.12%, 3 year 13.74%, 5 year 21.87%. 

Bottom Line

The healthcare sector is positioned for sustained earnings and revenue growth out through 2015.  So if you are inclined to invest into the healthcare sector, you should look to add these highly performing mutual funds to your portfolio.  

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Earnings , Mutual Funds


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