Health Care's Been the Big Winner, but Can You Assume the Risk?
Health care funds are far and away this year's top-performing pack, but buying a chart topper might be biting off more risk than you can chew.
Because sector funds focus their investments on one industry or even a thin slice of it, they're often feast-or-famine performers. This year health care funds have been feasting. So far they're outperforming every other fund category, up more than 50%, compared to a 7.2% dip for the S&P 500
, according to Morningstar. | Health Care's Year Health care has been the sector to beat this year. | ||
| Avg. Health Care Fund | S&P 500 | |
| YTD Return | 50.2% | -7.2% |
| 1-Year Return | 70.3 | -1.6 |
| 5-Year Return | 22.1 | 19.3 |
| 10-Year Return | 21.1 | 18.1 |
| Source: Morningstar. Annualized performance figures through Nov. 15. | ||
| Leading Health Care Funds These funds are the best performers in a very hot sector | ||
| Fund | 1-Year Return | 3-Year Annualized |
| (MFHAX)Munder Framlington Healthcare A | 172.8% | 39.4% |
| (FBDIX)Franklin Biotech Discovery* | 136.6 | 44.7 |
| (DGHCX)Dresdner RCM Global Health Care | 114.3 | 40.0 |
| (ETHSX)Eaton Vance Worldwide Health Sci A | 99.9 | 39.5 |
| (FBIOX)Fidelity Select Biotechnology | 75.6 | 46.8 |
| Avg. Health Care fund | 70.3 | 25.0 |
| S&P 500 | -1.6 | 13.8 |
| Source: Morningstar. Annualized performance figures through Nov. 15. *Currently closed to new investors. | ||
investor, check out (DGHCX)Dresdner RCM Global Health Care. If you don't mind paying a 3% maximum front-end load
, or sales charge, check out (FBIOX)Fidelity Select Biotechnology -- the firm's sector funds are typically strong performers thanks to its strong bench of analysts. If you work with a broker, check out broker-sold (ETHSX)Eaton Vance Worldwide Health Sciences -- broker-sold (FBDIX)Franklin Biotech Discovery fund is closed to new investors. But keep in mind that the mercurial sector is due to cool -- making these funds a potentially risky bet. After all, between 1993 and 1996 the Amex Biotech Index lost 3.3%. A look at the cumulative top-10 holdings of these leading funds shows their biotech focus. All 10 stocks are either classified as biotech or pharmaceutical shops and include none of the industry giants like Merck (MRK), Pfizer (PFE) or Bristol-Myers Squibb (BMY). | Under the Hood The stocks with the biggest weighting in the combined portfolios of the 10 above funds | ||
| Stock | Weighting in Top-10 Funds | Number of Top-10 Funds Owning the Stock |
| MedImmune(MEDI) | 2.3% | 4 |
| Amgen(AMGN) | 2.2 | 3 |
| Immunex(IMNX) | 2.0 | 2 |
| Chiron(CHIR) | 2.0 | 3 |
| IDEC Pharmaceuticals(IDPH) | 1.8 | 3 |
| Genentech(DNA) | 1.8 | 4 |
| Abgenix(ABGX) | 1.7 | 4 |
| Inhale Therapeutic Systems(INHL) | 1.7 | 4 |
| Sepracor(SEPR) | 1.6 | 4 |
| Alza(AZA) | 1.5 | 3 |
| Source: Morningstar. Holdings as of funds' most recent portfolio reports. | ||
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