The Daily Screen: The Best Health Care Funds

In a gory year for stocks, health care funds have been stars. That's where today's Daily Screen turns its attention.

These funds typically have the leeway to invest in drug makers of all sizes, HMOs, hospitals, medical device makers, or even software shops that help docs cut down on their business's paper chase. But over the past couple of years, the top health care funds have been those that focus on biotech companies, the small high-tech labs that develop new medications.

Over the past year, the American Stock Exchange Biotechnology Index is up a startling 148%, according to Baseline. But it might be a pretty fatal mistake to plan on biotechs holding anything close to that pace. Yes, the mercurial sector is known for these types of performance bursts, but it's also known for long droughts. Consider that the same index posted a cumulative 3.3% loss from January 1993 to January 1996. So far in October, the index is off more than 16%.

As usual, we've sifted the category for the funds that beat their average peer over the past one- and three-year periods, according to Morningstar. We came up with five and have ranked them by one-year return below. In addition to these, you might take a look at less biotech-heavy types. One candidate is (VGHCX)Vanguard Health Care, which has no load but a steep $10,000 minimum for nonretirement accounts; another is (FSPHX)Fidelity Select Health Care, which benefits from Fido's deep analytical bench but carries a maximum 3% front-end load or sales charge.

We've also poked under the hood of the category's leading funds, listing their cumulative top holdings in a second chart. As you might imagine, the list skews toward biotech and drug shops. Consider top-three holdings Immunex(IMNX), MedImmune(MEDI) and biotech bellwether Amgen(AMGN).

Leading Healthcare Sector Funds These funds have trounced their peers and the broader market
Fund	1-Year Return	3-Year Annualized
(MFHAX)Munder Framlington Healthcare	176.2%	34.3%
(FBDIX)Franklin Biotechnology Discovery*	138.2	41.0
(DGHCX)Dresdner RCM Global Health Care	113.1	35.6
(ETHSX)Eaton Vance Worldwide Health Sciences	96.1	31.9
(FBIOX)Fidelity Select Biotechnology	71.5	40.8
Avg. Health Care Fund	70.4	20.9
(VFINX)Vanguard 500 Index	2.6	12.7
Source: Morningstar. Performance figures through Oct. 12. *Closed to new investors.

Under the Hood The stocks with the biggest weighting in the combined portfolios of the above five funds
Stock	Weighting in Top-Five Funds	Number of Top- Five Funds Owning the Stock
Immunex(IMNX)	2.7%	3
MedImmune(MEDI)	2.4	4
Amgen(AMGN)	2.2	3
Genentech(DNA)	1.9	4
Chiron(CHIR)	1.9	3
IDEC Pharmaceuticals(IDPH)	1.8	3
Pfizer(PFE)	1.6	3
COR Therapeutics(CORR)	1.6	3
Inhale Therapeutics(INHL)	1.6	4
Millennium Pharmaceuticals(MLNM)	1.6	3
Source: Morningstar. Holdings as of most recent portfolio report.

In a gory year for stocks, healthcare funds have been stars. That's where today's Daily Screen turns its attention.

These funds typically have the leeway to invest in drug makers of all sizes, HMOs, hospitals, medical device makers, or even software shops that help docs cut down on their business's paper chase. But over the last couple of years, the top healthcare funds have been those that focus on biotech companies, the small high tech labs that develop new medications.

Over the last year the American Stock Exchange Biotechnology Index is up a startling 148%, according to Baseline. But it might be a pretty fatal mistake to plan on biotechs holding anything close to that pace. Yes, the mercurial sector is known for these types of performance bursts, but it's also known for long droughts. Consider that the same index posted a cumulative 3.3% loss from January 1993 to January 1996. So far in October the index is off more than 16%.

As usual we've sifted the category for the funds that beat their average peer over both the last one- and three-year periods, according to Morningstar. We came up with five and we've ranked them by one-year return below. In addition to these, you might also take a look at less biotech-heavy types. One candidate is (VGHCX)Vanguard Health Care, which has no-load but a steep $10,000 for nonretirement accounts, and another is (FSPHX)Fidelity Select Health Care, which benefits from Fido's deep analytical bench, but carries a maximum 3% front-end load or sales charge.

We've also poked under the hood of the category's leading funds, listing their cumulative top holdings in a second chart. As you might imagine, the list skews toward biotech and drug shops. Consider top-three holdings Immunex, MedImmune, and biotech bellwether Amgen.

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