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5 Best-Performing Healthcare Mutual Funds in Q3

Broadly encouraging markets and continued investment initiatives have paved the way for the healthcare sector to become one of the top performers this year. The Health Care Select Sector SPDR ETF (XLV) surged 3.1% in 3Q17. Additionally, President Trump has failed repeatedly to repeal the Affordable Care Act (ACA), also known as Obamacare. This has protected gains for several sections of the sector.

Moreover, investors no longer have to deal with fears related to over-pricing of drugs, with political voices on this issue mostly absent in recent times. Moreover, a higher number of FDA approvals and continued strong performance from legacy products have been instrumental in boosting gains. Considering all these factors, we believe that it is the right time to bet your money on healthcare mutual funds.

House Tax Bill Fails to Repeal Obamacare

Republicans of the House finally unveiled a detailed tax cut policy under the Tax Cuts and Jobs Act which seeks to reduce corporate taxes and revoke the taxes paid by large businesses. The bill has not been formally signed into law but a detailed framework has been presented.

The framework did not revoke the individual mandate specified under Obamacare. This mandate requires all citizens of the United States to necessarily own health insurance. However, the bill seeks to abolish any deduction for medical expenses and the drug research tax credit.

Further, members of the GOP argue that the move to repeal tax credit on drug research would help accumulate as much as $54 billion from 2018 through 2027. Meanwhile, the bill increases the standard deduction and slashes the interest rate. Interestingly, most of the counties within the United States will have access to free healthcare plans. This move helps people from the lower income bracket to secure access to health insurance.

Tax Reforms to Boost Healthcare Stocks

In an executive order in October, Trump had aimed at scrapping a key component of Obamacare. However, the uncertainty was reduced to some extent as news of the two political parties coming to a bipartisan deal started doing rounds. This in turn led to a rally in healthcare stocks.

Another major reform proposed is the repatriation of trillions of dollars held as cash reserve overseas by companies with global operations for a one-time tax (reportedly 10%). Moreover, in 2004, the Bush administration attempted a similar repatriation tax holiday for bringing in overseas cash reserves for a one-time tax of 5.25%. A number of companies repatriated an amount exceeding $300 billion. Moreover, Trump’s one-time tax repatriation policy is deemed to improve the overall financial condition of healthcare companies, specifically hospital stocks as these get a chance to get overseas profits back home at an absolutely low level.

Drug Pricing Issue Easing

Healthcare was hit hard before the election on the price-gouging issue which was first raised by Hillary Clinton in September 2015. She had tweeted about "price gouging" and framed a proposal to combat skyrocketing drug prices.

In reply, President Donald Trump’s March 7 tweet on increasing competition and lowering drug prices sent fresh shockwaves across the industry. He had tweeted that his team was working on a ‘new system’ which would involve ‘competition in the Drug Industry.’ Since this tweet, Trump has never commented publicly about drug pricing.

Also, Trump's pledges to reduce FDA regulations, remove taxes and fees on pharmaceutical and medical-device manufacturers, and successful clinical trials for new drugs may prove to be a boon for the space. Meanwhile, some other factors that should continue having a positive impact on pharma and biotech stocks are a new product sales ramp up, R&D success and innovation, strong results, a higher number of FDA approvals and continued strong performance from legacy products. (Read More)

5 Best Performing Healthcare Mutual Funds

We have highlighted five healthcare mutual funds sporting a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging third-quarter and YTD returns. Additionally, the minimum initial investment is within $5000 and net assets are above $50 million. Favorable economic conditions and newer reforms to the healthcare bill make the sector a hotbed of money.

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.

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.

FBIOX has an annual expense ratio of 0.74%, which is below the category average of 1.29%. The fund has three-year and YTD returns of 5.1% and 27.3%.

Hartford Healthcare HLS Fund IA HIAHX invests the lion’s share of its assets in equity securities of companies engaged in the healthcare industry. These companies are located in different nations including the United States. HIAHX may invest in securities issued by companies of any market capitalization. The fund seeks appreciation of capital for the long run.

HIAHX has an annual expense ratio of 0.89%, which is below the category average of 1.29%. The fund has three-year and YTD returns of 9.7% and 21.5%, respectively.

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. The fund seeks capital appreciation for the long run.

JAGLX has an annual expense ratio of 0.93%, which is below the category average of 1.29%. The fund has three-year and YTD returns of 6.9% and 21.3%, respectively.

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.

PRHSX has an annual expense ratio of 0.77%, which is below the category average of 1.29%. The fund has three-year and YTD returns of 10.4% and 27.2%, respectively.

Fidelity Select Health Care Svcs Fund FSHCX seeks capital appreciation. FSHCX normally invests at least 80% of assets in common stocks of companies principally engaged in the ownership or management of hospitals, nursing homes, health maintenance organizations, and other companies specializing in the delivery of health care services.

FSHCX has an annual expense ratio of 0.78%, which is below the category average of 1.29%. The fund has three-year and YTD returns of 10.4% and 18.2%, respectively.

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