The overall demand for new innovative medical products and services has continued to rise due to an ageing population. This increase in demand for new drugs, therapies, and medical instruments is expected to be a long term growth driver for the Healthcare sector. Innovations by medical devices companies, drug makers, and improvements in new technology have been the driving force behind the Healthcare sector over the past several quarters. The sector’s participants typically have a solid balance sheet, improving revenues, and tend to return cash to shareholders via dividends.
The debate about the future of the Affordable Care Act still exists, and is currently acting as a headwind, but the overall view of the sector is that it is undervalued. Further, both the biotech and pharmaceutical industries ability to innovate with new drugs and therapies has enabled them to generate sustainable cash-flows which makes them attractive investments.
Finding the Righ Funds
To capitalize on the growing healthcare sector, we utilized the Zacks mutual fund screener to identify the best funds with specific characteristics. First, the fund had to have a Zacks Rank #1 (Strong Buy) or #2 (Buy) rating. Second, they had to have an expense ratio below 1.2% with no load fees Third the fund had to have significant exposure to stocks in the healthcare sector. Lastly, they had to have a history of success with a 1 year total return above +15%.
The Picks
Delaware Healthcare I (DLHIX – Free Report), a Zacks Rank #1 (Strong Buy) seeks maximum long-term capital growth through capital appreciation. Normally, the Fund will invest at least 80% of its assets in the equity securities of healthcare companies, meaning companies that develop, produce or distribute products or services.
Cost Specifics: There is no minimal investment, it has a 0.85% management fee with a total expense ratio of 1.13%.
Performance and Management: YTD return +30.5%, 1 year return +24.5%, 3 year return +12.7%, and 5 year return +20.6%. The fund is managed by Liu-Er Chen, who is both a CFA, and M.D. and holds the title of SVP. Mr. Chen also has a M.B.A. in management from Columbia Business School.
