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Healthcare funds are defensive and deliver better performance during long bull periods. Last year, these funds acted as a buffer for investors and fetched stunning returns. Healthcare encompasses medical supply and medical equipment companies, biotechs, pharmaceutical firms and providers. Hence, consumers continue to buy these goods and services irrespective of the state of the economy.

Apart from the defensive nature, the health scare in 2020 boosted demand for medical suppliers and medical equipment providers, making them outperformers of the group. This year however, as vaccination remains the prime goal of governments worldwide, the healthcare space will continue to tread north. The pandemic pushed several pharmaceutical companies to find a safe and effective vaccine, and therapeutics for the infected ones. Giants like Pfizer and Moderna have been in the investors’ radar as they urgently looked to find a cure and eventually received emergency use authorization from the FDA.

Keeping the pandemic aside, the healthcare space is benefitting from technology evolution, starting from telehealth to robotics. Advancement in telehealth has been quite eminent last year.  Per NTT Data Services’ report, demand for virtual care went up to 40-50% due to the pandemic from around 10% before the pandemic.

Additionally in 2021, the healthcare sector will be witnessing several tie-ups, partnerships, mergers, consolidations and IPOs. Health systems (especially hospitals) are expected to make alliances, including collaborations with non-traditional partners (like technology providers), to address gaps in infrastructure exposed by the virus. Digital transformation will remain a prime focus as the pandemic bumped up demand for virtual and behavioral health services. Demand for telehealth remains above the pre-pandemic levels as consumers weigh convenience of such services, pushing health systems to find a new balance between virtual and in-person visits.

According to BDO’s 2021 Healthcare CFO Outlook Survey, consumers had postponed primary, dental and vision care due to the pandemic and will come back this year. Notably, 70% of the healthcare CFOs interview forecast a revenue increase, while 77% forecast stronger profits.

4 Fund Choices

With millions of vaccines being deployed this year, healthcare funds are going to be great investments in 2021. We have highlighted four healthcare mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) that are poised to grow further. Moreover, these funds have encouraging year-to-date (YTD) returns. Additionally, the minimum initial investment is within $5000. We expect these funds to outperform their peers in the future.

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.

Fidelity Select Health Care Portfolio (FSPHX - Free Report) fund aims for capital appreciation. This non-diversified fund invests majority of assets in common stocks of companies principally engaged in the design, manufacture or sale of products or services used for or in connection with health care or medicine.

This Zacks sector – Health product has a history of positive total returns for more than 10 years. Specifically, the fund has returned 18.6% and 13.8% over the past three and five-year period, respectively.

FSPHX, a Zacks Mutual Fund Rank #1 fund, has an annual expense ratio of 0.70% versus the category average of 1.18%.

T. Rowe Price Health Sciences Fund (PRHSX - Free Report) aims for long-term capital appreciation. This non-diversified fund invests majority of assets in common stocks of large- and mid-capitalization companies mostly engaged in research, production and distribution of products and services in the healthcare-related industry.

This Zacks sector – Health product has a history of positive total returns for more than 10 years. Specifically, the fund has returned 17.4% and 13.7% over the past three and five-year period, respectively.

PRHSX, a Zacks Mutual Fund Rank #1 fund, has an annual expense ratio of 0.76%, which is below the category average of 1.18%.

Fidelity Select Medical Technology and Devices Portfolio (FSMEX - Free Report) fund aims for capital growth. It invests majority of assets in companies that are engaged in activities such as research, manufacturing, supply and sale of medical equipment and related technologies.

This Zacks sector – Health product has a history of positive total returns for more than 10 years. Specifically, the fund has returned 22.2% and 21.3% over the past three and five-year period, respectively.

FSMEX, a Zacks Mutual Fund Rank #1 fund, has an annual expense ratio of 0.71%, which is below the category average of 1.18%.

Fidelity Select Biotechnology Portfolio (FBIOX - Free Report) fund aims for capital appreciation. This non-diversified fund invests majority of net assets in common stocks of companies mostly engaged in the research, development, and distribution of biotechnological products.

This Zacks sector – Health product has a history of positive total returns for more than 10 years. Specifically, the fund has returned 17.4% and 9.1% over the past three and five-year period, respectively.

FBIOX, a Zacks Mutual Fund Rank #2 fund, has an annual expense ratio of 0.72%, which is below the category average of 1.18%.