Five Picks for Healthy Gains

Mutual Funds

Five Picks for Healthy Gains

These health-care sector funds could be right for your portfolio.

Health-care stocks make up about 12% of Standard & PoorUs 500-stock index, so putting at least that much of your U.S. stock portfolio in the sector makes sense. But if you're shopping for a health-care sector fund, keep in mind that other funds in your portfolio probably have a big dose of health stocks already, so factor that into your calculations.

Our favorite health-care fund is T. Rowe Price Health Sciences (symbol PRHSX; 800-638-5660). Under manager Kris Jenner, a graduate of Johns Hopkins School of Medicine, the no-load fund posted an annualized return of 18% over the past five years to October 1, outpacing the Dow Jones Health Care index by an average of eight percentage points per year.

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Large drug companies dominate the major health-care indexes, and just two stocks, Johnson & Johnson and Pfizer, account for as much as 20% of some measures. Jenner's portfolio, by contrast, tilts toward midsize firms. Roughly one-third of the fund is invested in biotech stocks, and its allocation to Big Pharma is low, at about 25% of assets. We think that's about right. The fund charges a reasonable 0.87% annually to cover expenses.

Schwab Health Care (SWHFX; 800-435-4000), which uses a computer model to pick stocks, is another top-performing, low-cost fund. Lately, the model has been favoring shares of large companies, and Big Pharma dominates the top ten holdings, which make up about half the fund's assets (Schering-Plough, Merck and Pfizer are among the four biggest holdings). But it's hard to argue with the fund's record -- a 19% annualized return over five years. The expense ratio is 0.84%.


If you prefer an indexed approach to health stocks, we suggest two cheap exchange-traded funds. Annual expenses for Vanguard Health Care (VHT) and Health Care Select Sector SPDR (XLV) are 0.25% and 0.24%, respectively. SPDR S&P Biotech (XBI) is a good way to add some biotech to your existing health-care holdings, but donUt get carried away. A 5% allocation is more than enough for most investors. The fund charges 0.35% annually for expenses.