The healthcare sector is comprised of companies that offer medical services, manufacture medical equipment or drugs, provide medical insurance, or engage in activities that facilitate the provision of healthcare to patients. The most recent data available from 2020 show that spending on healthcare in the U.S. reached $4.1 trillion, representing close to 20% of the country’s gross domestic product (GDP). The Centers for Medicare & Medicaid Services (CMS) Office of the Actuary predicted before the COVID-19 pandemic that total U.S. healthcare expenditures would rise to $6.2 trillion by 2028. Investors looking to profit from the growth in national health expenditures may consider healthcare mutual funds, which provide diversified exposure to a range of companies serving the healthcare sector.
Key Takeaways
- The top three healthcare mutual funds outperformed the overall performance of the Morningstar healthcare sector mutual fund category.
- The healthcare mutual funds with the best one-year trailing total returns are SWHFX, FSMEX, and FSHCX.
- The top holdings of these funds are Johnson & Johnson, Thermo Fisher Scientific Inc., and UnitedHealth Group.
We look at the top three healthcare mutual funds as ranked by their one-year trailing total return (TTM) as of the close of markets on Dec. 14, 2021. The three funds were selected from the group of Morningstar healthcare sector mutual funds that are open to new investors, require a minimum initial investment of $1000 at most, and have assets under management (AUM) of at least $50 million. The top three funds all outperformed Morningstar’s healthcare sector mutual fund category, which provided a total return of 3.1% over the same period.
Schwab Health Care Fund (SWHFX)
- 1-year trailing return: 21.0%
- Expense Ratio: 0.80%
- Trailing-Twelve-Month (TTM) Dividend Yield: 0.70%
- Assets Under Management: $900.9 million
- Inception Date: July 3, 2000
SWHFX is managed by Wei Li and Iain Clayton. The fund aims to achieve long-term capital growth through investments in the healthcare sector. It provides exposure to a variety of healthcare companies, including pharmaceutical and biotechnology companies as well as medical product manufacturers and suppliers. Securities held in the fund’s portfolio are chosen based on three criteria: fundamentals, valuation, and sentiment. SWHFX primarily focuses on large cap U.S. equities and utilizes a blended strategy of investing in a mix of growth and value stocks. Its top three holdings include Johnson & Johnson (JNJ), UnitedHealth Group Inc. (UNH), and Pfizer Inc. (PFE), all three of which are major healthcare companies.
Fidelity Select Medical Technology and Devices Portfolio (FSMEX)
- 1-year trailing return: 20.8%
- Expense Ratio: 0.70%
- Trailing-Twelve-Month (TTM) Dividend Yield: 0.00%
- Assets Under Management: $10.4 billion
- Inception Date: April 28, 1998
FSMEX is managed by Edward Yoon. The fund generally invests 80% or more of its assets in securities of companies primarily engaged in research, development, manufacture, distribution, supply, or sale of medical equipment, devices, and related technologies, as well as companies that provide information technology services primarily to healthcare providers. Its holdings are primarily comprised of U.S. large cap growth stocks. FSMEX’s top three holdings are Thermo Fisher Scientific Inc. (TMO), a manufacturer of scientific instruments, consumables, and chemicals; Danaher Corp. (DHR), a provider of various professional, medical, industrial, and commercial products; and Boston Scientific Corp. (BSX), a manufacturer of medical devices used in a range of interventional medical specialities.
Fidelity Select Health Care Services Portfolio (FSHCX)
- 1-year trailing return: 19.3%
- Expense Ratio: 0.73%
- Trailing-Twelve-Month (TTM) Dividend Yield: 0.18%
- Assets Under Management: $1.1 billion
- Inception Date: June 30, 1986
FSHCX is managed by Justin Segalini. The fund primarily invests in companies that own or manage hospitals, nursing homes, health maintenance organizations, and other companies specializing in the delivery of healthcare services. It normally invests 80% or more of its assets in securities primarily engaged in these activities. The fund’s portfolio is primarily comprised of U.S. large cap value stocks. Its top three holdings are UnitedHealth Group; Humana Inc. (HUM), a provider of health insurance services; and Cigna Corp. (CI), a provider of medical and dental insurance and related products and services.