Benzinga - by Zacks, Benzinga Contributor.
Healthcare did not have a great 2023, even as markets turned around from the depths of the year prior. The sector, which roughly accounts for 13% of the S&P 500, lagged last year as investors flocked to massive tech and growth stocks that propelled the markets. A late-year rally in 2023 saw the sector pairing its losses for the year and ending the 12 months on a positive note, even if only just. The turnaround, however, did not stop it from becoming one of the S&P 500's worst-performing sectors in 2023, rising just 0.3% compared to the benchmark index's 24% jump.
Yet, upsides are being witnessed for the sector of late. Health spending in the United States has been forecast to grow at an average annual rate of 5.4% for 2019-2028 and should reach $6.2 trillion by 2028. While the industry faces labor shortages and recessionary pressures in the post-pandemic world marked by a European war, it is currently pitted to grow at a higher rate than the overall economy.
Globally, approximately $8.3 trillion is being spent on healthcare, with almost half of that, roughly $3.8 trillion, coming from the United States. Considering the fact that the healthcare sector is growing faster than the overall world economy, these figures are expected to rise substantially by the turn of the decade.
Several societal and demographic upheavals are also aiding the sector. These include an aging population and epidemics like obesity and diabetes. Moreover, these stocks are considered defensive, meaning they tend to remain stable regardless of the prevalent market conditions. Regular demand for healthcare services is not dependent on the peaks and troughs of a market that has risen and fallen over the past two years over the Fed's monetary policy.
Also, the healthcare sector is poised for significant long-term changes, including the integration of AI in medical research. The sector also seems lucrative for investors looking for a steady cash flow because pharmaceutical companies are known to offer regular dividends.
Healthcare has also seen growth in the ETF market in 2024. The S&P 500 Select Sector SPDR for Healthcare (ARCA:XLV) grew 2.4% in March. It has jumped 8.8% in the first quarter and 16% over the last 12 months. The sector may be off its pandemic-period peak but will remain resilient and grow in the coming years.
Hence, astute investors should bet on healthcare mutual funds at present. Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases.
We have thus selected three such healthcare mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy), 2 (Buy), have positive three-year and five-year annualized returns, minimum initial investments within $5000, and carry a low expense ratio.
Janus Henderson Global Life Sciences (NASDAQ: JNGLX) primarily invests in equity securities issued by companies engaged in life sciences orientation.
Andrew Acker has been the lead manager of JNGLXsince April 2007. The fund has 6.5% of its portfolio invested in UnitedHealth Group, 5.1% in Eli Lilly and 4.2% in Novo Nordisk.
JNGLX's 3-year and 5-year annualized returns are 7.6% and 11.6%, respectively. Its net expense ratio is 0.80%. JNGLXhas a Zacks Mutual Fund Rank #2.
Vanguard Health Care (NASDAQ: VGHCX) primarily invests in stocks of companies principally engaged in the development, production, or distribution of products and services in the healthcare industry. VGHCX also invests a significant portion of its assets in foreign stocks.
Jean M. Hynes has been the lead manager of VGHCX since May 2008. The fund has 8% of its portfolio invested in Eli Lilly, 7.8% in UnitedHealth Group and 5.7% in AstraZeneca.
VGHCX's 3-year and 5-year annualized returns are 7.9% and 9.9%, respectively. Its net expense ratio is 0.36%. VGHCX has a Zacks Mutual Fund Rank #1.
Fidelity Select Pharmaceuticals Portfolio (NASDAQ: FPHAX) primarily invests in stocks of companies principally engaged in the research, development, manufacture, sale, or distribution of pharmaceuticals and drugs of all types. FPHAX advisors use fundamental analysis of factors like each issuer's financial condition and industry position, as well as market and economic conditions, to arrive at their investment decision.
Karim Suwwan de Felipe has been the lead manager of FPHAX since June 2017. The fund has 24.1% of its portfolio invested in Eli Lilly, 14.8% in Novo Nordisk and 9.4% in AstraZeneca.
FPHAX's 3-year and 5-year annualized returns are 13.2% and 14%, respectively. Its net expense ratio is 0.73%. FPHAX has a Zacks Mutual Fund Rank #1.
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