The healthcare sector has sprung back to life after spending days in the dark. This can be attributed to a higher-than-usual number of approvals by the FDA and the continued influx of funds into the sector.
Per a recent study, U.S. healthcare has caught the fancy of American and foreign venture capitalists alike. The inflow of funds the space has witnessed so far in 2018 has surpassed the total funding it received in 2017 by a large margin. Under such encouraging conditions, investing in healthcare mutual funds seems prudent.
U.S. Healthcare a Hotbed for VC Funding
Per the latest quarterly report by Pitchbook, provider of data related to venture capital and private equity funding, healthcare companies in the United States raised approximately $23.4 billion in venture funding as of Sep 30. The figure also surpassed the $20.5 billion funding that the space received in all of 2017. Further, the funding received by healthcare alone accounts for about 28% of the total venture funding in the United States so far this year.
Pharma and biotech have received the majority of venture capital funding so far this year, accounting for about 62% of the total. About 6,500 deals have closed as of Sep 30 this year, which in on track to surpass 9,300 deals closed in all of 2017.
Chinese Funds Breathe Life into Biotech Startups
Chinese venture-capital funds have invested a whopping $1.4 billion in U.S. biotech and drug companies in the period between January through March. This surpassed $125.5 million in investments by Chinese VCs for the whole of 2017. Part of such an increase can be attributed to China’s efforts in becoming the leader in healthcare investments across the globe. This apart, foreign investment in U.S. biotech is estimated to rise to $2 billion in 2018.
Leading from the front are China’s 6 Dimensions Capital and Hillhouse Capital Group. These are closely followed by Hong Kong-based Blue Pool Capital, which happens to be an investment arm of China-based Alibaba’s (BABA) executives.
3 Best Choices
We have, thus, selected three healthcare mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) that are poised to gain from such factors. Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.
We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Fidelity Select Biotechnology FBIOX invests the majority of its assets in securities of companies principally engaged in the research, development, manufacture and distribution of various biotechnological products. The fund invests in domestic and foreign issuers.
This Sector – Health product has a track of positive total returns for more than 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 4.1% and 14.6%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
FBIOX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.73%, which is below the category average of 1.24%.
Janus Henderson Global Life Sciences Fund T JAGLX invests in securities of companies that have a life science orientation. JAGLX invests a minimum of one-fourth of its assets in securities issued by companies that are categorized in the "life sciences" sector.
This Sector – Health product has a track of positive total returns for more than 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 6.6% and 16.7%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
FSHCX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.91%, which is below the category average of 1.24%.
T. Rowe Price Health Sciences PRHSX invests a major portion of its net assets in common stocks of companies involved in research, development, production, or distribution of products or services related to health care and life sciences. PRHSX may invest in companies of any size, however, the majority of its assets is invested in large and mid-capitalization companies.
This Sector – Health product has a history of positive total returns for more than 10 years. Specifically, the fund's returns over the one and five-year benchmarks are 10.3% and 18.5%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
FBDIX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.77%, which is below the category average of 1.24%.
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