Some Biotech Mutual Funds Worth Considering

Tomorrow is Thanksgiving, and I'm going to work a little less, eat a lot and enjoy time with my family. I don't know about you, but I certainly need a few moments to rest, and it's comforting to know the markets have closed at levels that we saw prior to the Sept. 11 terrorist attacks.

I keep track of a couple of indices such as the American Stock Exchange Biotech index and the Nasdaq Biotech index to help me gauge the overall market -- it's just a sanity check. When indices rally, or a particular company's share price remains down or spikes, I know to hone in and find out what's going on. And bingo, you've got a stock pick. But it's obviously not always that simple. Actually researching biotech stocks is more complex, and if you don't have the time or energy to do so but still want to get a piece of the action, then mutual funds could be the solution for you.

Overall, the biotech sector is healthy. This is evident from the increasing number of biotech products reaching the market. New technology is helping companies develop more successful drugs and treatments, and as baby boomers age, the market for prescription drugs is growing by leaps and bounds.

Despite this growth, though, the volatile nature of the biotech sector and the risk associated with it haven't disappeared, and investors should beware. It can take a decade or more and hundreds of millions of dollars to get a drug through the Food and Drug Administrations's high standards of testing and requirements. As a whole, the biotech sector tends to go from hot to cold on a single piece of news that can bring down the entire sector.

So biotech mutual funds can be an ideal option for those seeking higher returns but with some of the risk of investing in biotech companies mitigated. Not all funds are created equal, though, and some may suit different types of investors better than others.

(ETHSX Quote)Eaton Vance Worldwide Health and the (FBIOX Quote)Fidelity Select Biotechnology are among the more conservative biotech funds, with a mixture of biotech and pharmaceutical companies in their portfolios.

More aggressive and risk-tolerant investors may like (DRBNX Quote)Dresdner RCM Biotechnology or the (RYOIX Quote)Rydex Biotechnology fund. Dresdner has long led the biotech-fund pack with its ability to identify good companies in their early stages. One concern with this fund, though, is the recent departure of manager Faraz Naqvi, who had run the portfolio since 1999. Co-manager Michael Dauchot will continue Naqvi's work. Rydex's portfolio, meanwhile, mirrors the biotech sector by market cap with the largest stocks such as Amgen(AMGN Quote) and Immunex(IMNX Quote) being most heavily weighted.

Lastly is Merrill Lynch's Biotech Holder(BBH Quote), which is a bit different from the conventional mutual fund. The Holders are fixed baskets of 20 stocks that trade on the American Stock Exchange, so with the purchase of a single security, you get a basket of 20 stocks. Unlike a mutual fund, you actually own all the underlying stocks, and rather than paying 20 commissions for 20 stocks, you pay one for the entire collection. As with a stock, you can buy and sell HOLDRs shares throughout the trading day.

There are a number of ways you can play biotechs, and I think that for the average investor, mutual funds are a good place to put some of your money to capitalize on the growth in the biotech sector.

Until next week, may you all have a happy and blessed holiday.