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Best Performing Healthcare & Biotech Funds of Q2 2015 - Mutual Fund Commentary

Gourab Das

The healthcare sector’s strong run was unperturbed in the second quarter of 2015. After ending 2014 and the first quarter of 2015 as the top gainer among the sector equity funds, healthcare mutual funds have yet again snatched the top slot in Q2. Among all categories, healthcare ended in the second position with 5.6% gain in the second quarter, short of the China region which jumped 6.8%.

The gains have come short of first quarter gains though. Nonetheless, it was a tough second quarter for all mutual fund and broader markets. Markets had a dismal run in second quarter; wherein the S&P 500 and the Dow declined 0.2% and 0.9%, but the Nasdaq gained 1.8%. While NASDAQ Biotechnology (NBI) gained 7.4%, Health Care SPDR ETF (XLV) added a modest 2.6%.

As for individual mutual funds, Eventide Healthcare&Life Sciences I (ETIHX) from healthcare category helped the sector be the third best gainer after funds from Pacific and Government occupied the top two spots.

Of the 116 funds under the study, 108 funds ended in the green. The average gain for these funds was 4.7%. This is not very bad given the trend in the broader markets. Only 8 funds ended in the red, and the average loss was 0.8%. (Note: This numbers include same funds of different classes)

Q2 Lags Q1 Performance

However, healthcare’s 5.6% gain in Q2 is far short of first quarter’s gain of 10.7%. Also, the best gain of 11.4% this time is short of the first quarter’s best performer Turner Medical Science Lng/Srt Inv (TMSFX) gain of 24.8%.

Nonetheless, the second quarter in general has been a difficult one for the broader markets. In the first half of 2015, fund inflow slumped 36% year over year to $143 billion. This significant decline was largely due to the second quarter; wherein inflows were down to $41 billion through Jun 17, comparing unfavorably with $102 billion of inflows in the first quarter.

Just 41% of mutual funds could manage to finish in the green in the second quarter. This is less than half of the 81% gains scored by mutual funds in the first quarter. These losses however owed a lot to the selloff on the eve of the quarter's end.

Keep reading our Mutual Fund Commentary section, where we are reporting on performances and best picks from fund families and varied categories.

Healthcare Sector in Q2

Health care companies have been attracting a lot of attention with big players resorting to mergers and acquisitions and licensing deals to bolster their beleaguered pipelines.

In May, AbbVie acquired Pharmacyclics, Inc. in a transaction valued at $21 billion to boost its presence in hematological oncology. Meanwhile, Mylan, Teva Pharmaceutical Industries Ltd. and Perrigo Company are entangled in a three-way takeover battle with Teva looking to acquire Mylan and Mylan eyeing Perrigo. Rumors about other potential acquisitions continue to float in the sector.

Several health care companies are also entering into licensing deals to augment their pipeline. Immuno-oncology continues to be one of the favorite therapeutic areas in this regard. In June, Celgene Corporation (CELG) entered into a global collaboration for the development and commercialization of immunotherapies with Juno Therapeutics, Inc. The deals were not limited to this therapeutic area alone. Gene-based therapies among others are also attracting a lot of attention.

Coming to the earnings scorecard, only 11.5% of companies from Medical sector reported results so far till Jul 22. As of that date, year-on-year earnings growth was 3.1% with 100% beat ratio. Revenue growth was 2.5% with 50% beat ratio.

This compares favorably with the broader trends. As of Jul 24, 186 S&P 500 members that combined account for 52.0% of the index’s total market capitalization reported results. Total earnings for these companies are up 3.6% on 0.9% higher revenues. While 73.3% beat EPS estimates, 50.8% reported better-than-expected revenues. For more details read our Earnings Outlook articles.

Top 15 Healthcare Mutual Funds of Q2 2015

Below we present the top 15 Healthcare funds with best returns of Q2 2015:

Note: The list excludes the same funds with different classes, and institutional funds have been excluded. Funds having minimum initial investment above $5000 have been excluded. Q2 % Rank vs Objective* equals the percentage the fund falls among its peers. Here, 1 being the best and 99 being the worst.

Eight funds from the first quarter’s top 15 list have managed to appear in the list of top gainers in the second quarter as well. These eight funds are top-gainer Eventide Healthcare&Life Sciences A (ETAHX), Fidelity Adv Biotechnology A (FBTAX), Rydex Biotechnology A (RYBOX), T. Rowe Price Health Sciences (PRHSX), VALIC Co I Health Sciences Fund (VCHSX), Alger Health Sciences Fund A (AHSAX), Franklin Biotechnology Discovery A (FBDIX) and Janus Global Life Sciences A (JFNAX).

Here, only ETAHX carries a Zacks Mutual Fund Rank #1 (Strong Buy). Among favorable ranks, PRHSX, VCHSX, FBDIX and JFNAX carry a Zacks Mutual Fund Rank #2 (Buy). Meanwhile, FBTAX and RYBOX hold a Zacks Mutual Fund Rank #3 (Hold). However, AHSAX has a Zacks Mutual Fund Rank #5 (Strong Sell).

Very much like the first quarter, Fidelity seems to be dominating this space again. Four Fidelity funds had managed to be among the top healthcare funds gainers in the first quarter. This time, we have 3 funds from the Fidelity family. Apart from FBTAX, the other 2 Fidelity funds are Fidelity Select Biotechnology (FBIOX) and Fidelity Select Medical Delivery (FSHCX). Both these funds carry a Zacks Mutual Fund Rank #1.

For best Fidelity performers, you may read Best Performing Fidelity Mutual Funds of Q2 2015.

However, funds carrying dismal ranks now are Delaware Healthcare A (DLHAX), AllianzGI Health Sciences Fund A (RAGHX), Hartford Healthcare Fund A (HGHAX), BlackRock Health Sciences Opps A (SHSAX) and Putnam Global Health Care A (PHSTX). All these funds carry a Zacks Mutual Fund Rank #4 (Sell).

About Zacks Mutual Fund Rank

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Pick the best mutual funds with the Zacks Rank.

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