No. 1 Fidelity Biotech Fund Survives Trials

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The big news for health care is not all on Capitol Hill.

Health-care and biotechnology mutual funds have outperformed all other industries, rising an average of 3.9% last month. Funds focused on the sector made the most of investors' interest in drug and hospital stocks. The top-performing health or biotechnology fund, Fidelity Advisor Biotechnology(FBTAX Quote), gained 8.6%, excluding a sales fee of 5.75% and other expenses. Managed by Rajiv Kaul, the fund increased another 1.5% in the past week.

Average Sector Fund Performance in June Sector 1 Month Average Return % Health/Biotechnology 3.93 Utilities 2.63 Tech/Communications 2.06 Financial Services -1.06 Real Estate -1.82 Energy/Natural Res -6.72 Precious Metals -10.79 Source: TheStreet.com Ratings Data as of most recent month-end

The Fidelity Advisor Biotechnology Fund is rated A, or "buy," and is loaded with big names such as Amgen(AMGN Quote), which jumped 11% over the past week; Gilead Sciences(GILD Quote), up 8.7% in June; and Celgene(CELG Quote), up 13% last month.

Managers earn their pay in picking lesser-known drug-development companies with the potential to double or triple in value. If the timing is right, he or she identifies companies that have yet to turn profitable or ring in successful clinical-trial results.

This Fidelity fund found such a company by buying a small position in Jazz Pharmaceuticals(JAZZ Quote). Jazz Pharmaceuticals is one of the best-performing stocks in recent days, soaring 55% and holding on to a 270% return for June. Nearly all of the gain came on June 10 on a report anticipating the company would send its fibromyalgia treatment, sodium oxybate JZP-6, to the Food and Drug Administration for approval upon completion of Phase III trials.

One important question to answer when selecting drug stocks: "What's in the pipeline?" For Jazz Pharmaceuticals, its restless-leg-syndrome drug, Ropinirole, made it to Phase II trials on July 13. While that treatment is still in testing, the company already sells Xyrem to keep patients with narcolepsy and cataplexy awake during the daytime, and Luvox CR for obsessive-compulsive and social-anxiety disorders.