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Value Line’s Health objective group is a fairly small, yet surprisingly diverse, collection of mutual funds. Clearly, the funds in this category invest the vast majority of their assets in healthcare and related businesses. That said, there are a number of different variants within what would seem an otherwise narrow space.

The two biggest areas of differentiation are biotechnology and general healthcare funds. The former includes Franklin Biotechnology Discovery Fund (FBDIX), which focuses exclusively on companies in the biotechnology sector. Often these are small companies with novel drug compounds in the testing stage of research. The latter, meanwhile, may own shares of biotech companies, but enjoy a much broader mandate to invest in healthcare across all of its subsectors, as does T. Rowe Price Health Sciences Fund (PRHSX). These offerings often own both mature companies, like the major pharmaceutical firms, and developing companies, like the biotechs or small medical device makers.

There are, of course, index offerings, such as Vanguard Health Care Index Fund (VHCIX), and leveraged funds, such as ProFunds Biotech Ultra Sector Fund (BIPIX) and ProFunds HealthCare UltraSector Fund (HCPIX). In addition, funds take different approaches to foreign exposure, with some using words like “global” in their name to highlight their worldwide focus while others may have a more domestic focus. 

There are also funds that focus on subsectors beyond the more established biotech niche, including ProFunds Pharmaceuticals UltraSector Fund (PHPIX), a leveraged fund centered on drug stocks, Fidelity Select Medical Delivery Fund (FSHCX), and Fidelity Select Medical Equipment and Systems Fund (FSMEX). Some of these niche categories are so narrow that there is only one fund specializing in the space (such as the two Fidelity offerings), while others have multiple entrants, such as the drug-focused ProFund. 

Ultimately, if there is a particular healthcare niche one is interested in, there might be only one fund to fill the need—it’s just important to ensure that investment is managed in a way that is complementary to one’s overall approach. For most investors, however, a broad-based healthcare-focused fund is probably most appropriate. 

Over the long term, the Health objective group has been a good performer relative to the broader market, as measured by the Russell 3000 Index. For the 10-year period ended March 29, 2013, the group had an annualized gain of 9.9%, while the Index reported an annualized gain of 9.2%. Looking at the past five years and three years, the group had gains of 10.8% and 14.7%, respectively, while the Index reported increases of 6.3% and 13.0%. During the one-year period ended March 29, 2013, the Health objective group reported a return of 22.4%, compared with 14.6% for the Russell 3000 index. The group has a better-than-average risk rank of 2, indicating that funds in this group might appeal to many investors, including those that are risk-adverse. 

Fund Name: Kinetics Medical Adv Fund
Ticker: KRXAX
Year-to-Date Return: 20.49%
Investment Advisor: Kinetics Asset Management LLC
Benchmark: S&P 500 Index and NASDAQ Composite Index
Objective: Long term growth of capital
Investment Strategy:
• Non-diversified portfolio that invests all of its investable assets in medical assets.
• Invests at least 80% of its net assets plus any borrowings for investment purposes in common stocks, convertibles securities, warrants.
• Invests primarily in the equity securities of US and foreign companies (engaged in medical research, pharmaceutical and medical technology industries).
• Fund focuses in cancer research and medical instrument manufacturers and developers (such as pharmaceutical manufacturers, biotech and medical research companies).
• May also invest in ETFs and write and sell options.
• May invest up to 20% of its total assets in convertible and non-convertible debt securities.
Manager's Philosophy:
• Invest in diverse array of companies (medical research, pharmaceutical development, and manufacturing).
• Research themes (genome research, anti-angiogenesis, immunotherapy, contract research companies).


Fund Name: Eventide Healthcare & Life Sciences Fund
Ticker: ETAHX
Investment Advisor: Eventide Asset Management, LLC
Benchmark: S&P 500 Total Return Index and Healthcare Blended Index
Objective: Seeks to provide long-term capital appreciation
Year-to-Date Return: 18.15%
Investment Strategy:
• Fund invests at least 80% of its net assets in equity and equity-related securities of companies in the healthcare and life sciences sectors (including common stock, options, preferred stock and convertible debt).
• May include companies that derive or are expected to derive 50% of their revenue from healthcare and life science products and services (including biotechnology, pharmaceuticals, diagnostics, life science tools, medical devices, healthcare information technology, healthcare services, synthetic biology, agricultural and environmental management, pharmaceutical manufacturing products and services).
• Fund may invest in securities of companies of any market capitalization.
• Fund is non-diversified.

Fund name: BlackRock Health Sciences Opportunities Fund
Ticker:SHSAX
Investment Advisor: BlackRock Advisors, LLC
Year-to-Date Return: 17.54%
Benchmark: S&P 500 Index and Russell 3000 Health Care Index
Objective: Fund seeks to provide long-term growth of capital
Investment Strategy:
• Fund invests at least 80% of total assets in equity securities, primarily common stock (companies in health sciences and related industries).
• Health sciences sector can include (health care equipment and supplies, health care providers and services, biotechnology, pharmaceuticals).
• May invest in companies located in non-US countries.
• Fund is non-diversified.

In the table below, we have listed 10 top-performing funds through March 29, 2013 that we follow in our Fund Advisor database.

10 Top Health Funds Performance

 

Fund Name

Ticker

% Year-to-Date

Total Return

% 1 Month

Total

Return

% 3

Month

Total

Return

% 6 Month

Total

Return

% 5 Year

Total

Return

Annualized

Kinetics Medical Fund A

KRXAX

20.49

9.32

20.49

16.19

8.63

Fidelity Select Biotechnology

FBIOX

20.36

9.9

20.36

16.65

18.27

  

Fidelity Adv Biotechnology

FBTAX

19.81

9.57

19.81

16.39

17.64

Franklin Biotechnology Discovery A

FBDIX

19.37

7.53

19.37

13.50

16.18

Rydex Biotechnology A

RYBOX

18.23

7.77

18.23

13.94

17.59

Eventide Healthcare & Life Sciences A

ETAHX

18.15

8.22

18.15

  

  

Prudential Jennison Health Science A

PHLAX

17.97

6.69

17.97

11.88

15.94

  

BlackRock Health Sciences Opportunities A

SHSAX

17.54

7.11

17.54

17.76

12.25

Delaware Healthcare A

DLHAX

17.55

7.06

17.55

20.98

20.31

Hartford Healthcare A

HGHAX

15.85

6.30

15.85

13.94

10.37

Health Objective Group

  

15.53

6.38

15.53

13.52

10.82

  

At the time of this article's writing, the author did not have positions in any of the companies mentioned.