The past two topsy-turvy years have proven that some health care funds are fitter than others. We've found a real health nut for you, along with a fund that looks a little green around the gills.
Health care funds were a port in the storm last year, as burned tech investors plowed their money into an area whose earnings growth tends to be a bit more stable. The average health fund rang up a 55% gain in 2000, compared with a 9% drop for the S&P 500. But the average health fund is down 12% over the past 12 months, according to Chicago fund-tracker Morningstar.
That said, it's easy to see why you'd be interested in a health care fund. As millions of Baby Boomers ease into retirement, they'll spark demand for health care, boosting profits for companies in the pharmaceutical, hospital and biotech rackets. As we've
shown you in the past, adding a health care fund to a diversified portfolio can both boost returns and cut risk over time.
If you're looking for one, we suggest you check out the no-load (VGHCX Quote - Cramer on VGHCX - Stock Picks)Vanguard Health Care fund, our latest entrant into the Ima Winner Fund Club. On the flip side, we encourage you to think long and hard before you cast your lot with the no-load (FHLSX Quote - Cramer on FHLSX - Stock Picks)Invesco Health Sciences fund.
The Winner
The definition of a great fund is one that consistently delivers above-average gains with below-average volatility with a modest price tag. The Vanguard Health Care fund delivers on all fronts.
Veteran manager Ed Owens has held the reins since the massive fund was launched in 1984, spreading the fund's money broadly around the sector with a low-turnover, buy-and-hold style. That sounds vanilla, but it's worked well. The fund has topped the S&P 500 and at least 70% of its peers over the past one, three, five and 10 years.
| Ima Winner |
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| Source: Morningstar. Returns through Aug. 9. |
Even with those big gains, the fund hasn't been volatile, falling less than its average peer in down months over the past three years. And its 0.34% annual expense ratio is ultralow, compared with the category's 1.74% average.
Arguably, the only problem with the fund is that it's just too popular. It's now the largest sector fund in the nation, with more than $17 billion in its coffers. To smooth out the inflows, Vanguard has recently raised the fund's minimum investment to $25,000.
That's too steep for a lot of folks, so we've got a co-winner, the
(ETHSX Quote - Cramer on ETHSX - Stock Picks)Eaton Vance Worldwide Health Sciences fund. Run by Sam Isaly since 1989, the fund's money is cast broadly across the sector and tops at least 90% of its peers and the S&P 500 over the past one, three, five and 10 years. Either fund is a solid choice if you've got the health bug.
The Sinner
The Invesco Health Sciences fund is under the weather.
The fund, which tends to blend volatile shares of biotech shops with blue-chip pharmaceutical stocks, trails its average peer over the past one, three, five and 10 years. In fact, it has trailed the category average in four of the past five years. In addition to its below-average returns, the fund has been more volatile than its average peer.
To be fair, there is hope. Manager John Schroer handed the reins to Tom Wald in November. The fund is down 19.3% since Jan. 1, trailing its average peer, but it's too soon to judge Wald's acumen. That said, it will take a string of solid years to boost the fund's record.
| Ima Loser |
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| Source: Morningstar. Returns through Aug. 9. |
Despite its flagging record, there are plenty of investors who own the fund. With some $1.8 billion in assets, it's more than twice the size of its average peer. If you're one of the folks who own it and don't want to realize a cap gain, it's understandable if you want to give Wald some time to prove himself.
But if you're shopping for a health fund, you should take this one off your list.
Ian McDonald
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