Ongoing worries, including weak global growth, strengthening dollar and the persistent slump in oil price, appear to have affected Q4 corporate earnings. Amid this dismal backdrop, the medical sector has emerged as one of the few bright spots. And the sector’s outlook for the coming quarters also looks impressive.

As such, fundamentally strong funds from this sector may offer favorable investment propositions.

Medical Sector Outperforms

Total earnings of the 388 S&P 500 members that reported Q4 results as of Feb 17 declined 6.4% year over year on 4.6% lower revenues. And nine out of the 16 Zacks sectors are expected to suffer an earnings decline in their Q4 results. Total earnings for the S&P 500 members are expected to decline 6.7% year over year.

In spite of the overall softness, companies from the medical sector that have reported as of Feb 17 registered total earnings growth of 7.4% on 9.1% higher revenues. The sector is expected to witness earnings growth of 9.2% on 9.4% higher revenues for the quarter.

Earnings and revenues for the sector are also expected to grow in 2016. For the ongoing quarter, the sector is predicted to register earnings and revenue growth of 3.8% and 8.4%, respectively. (Read: Earnings Picture Not Expected to Improve)

Some of the major players from this sector including Regeneron Pharmaceuticals (REGN - Analyst Report), UnitedHealth Group Inc. (UNH - Analyst Report) and Gilead Sciences, Inc. (GILD - Analyst Report) posted impressive results for the fourth quarter.

What Will Boost Medical Sector in 2016?

The Affordable Care Act (ACA) is likely to play an important role in boosting the healthcare sector this year. With a gradual decline in the unemployment rate and healthy job additions over the past few months, new employees should widen the coverage of health insurance and perk up demand in the sector. Moreover, government spending on healthcare is also expected to rise nearly 4.9% this year. It is estimated that Medicare and Medicaid spending may increase to over $1.25 trillion in 2016.

Further, merger and acquisition activities in the broader medical sector are expected to remain strong in 2016 and be significant catalysts to the sector’s growth. Separately, advancement in technology and innovation should also bode well for the space. Advances in genomics, biotechnology and artificial intelligence have not only helped the sector to grow over the past few years, but are also likely to be the growth drivers in the years to come.

4 Funds to Consider

Given these encouraging earnings performance and promising outlook, we present four healthcare mutual funds that are significantly exposed to medical sector and carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). We expect these funds to outperform their peers in the near 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.

These funds have strong three- and five-year annualized returns. The minimum initial investment is within $5000. Also, these funds have a low expense ratio and no sales load.

T. Rowe Price Health Sciences (PRHSX - MF report) invests a major portion of its assets in common stocks of companies whose primary operations are related to health sciences. The fund focuses on investing in large- and mid-cap firms.

PRHSX currently carries a Zacks Mutual Fund Rank #1 and has three- and five-year annualized returns of 20.6% and 21.2%, respectively. The annual expense ratio of 0.77% is lower than the category average of 1.36%.

Fidelity Select Medical Equipment & Systems (FSMEX - MF report) seeks growth of capital. The fund invests the lion’s share of its assets in companies that are primarily involved operations related to medical equipment and devices and the related technologies sector. The fund focuses on acquiring common stocks of both U.S. and non-U.S. companies.

FSMEX currently carries a Zacks Mutual Fund Rank #1 and has three- and five-year annualized returns of 16.3% and 12.7%, respectively. The annual expense ratio of 0.77% is lower than the category average of 1.36%.

Hartford Healthcare HLS IA (HIAHX - MF report) invests most of its assets in equities of healthcare-related companies of any size across the globe. The sub-adviser selects the equity securities and the issuers may be from other countries, including the U.S. Cash balances of HIAHX are not expected to be more than 10% of its assets.

HIAHX currently carries a Zacks Mutual Fund Rank #1 and has three- and five-year annualized returns of 18% and 17.4%, respectively. The annual expense ratio of 0.88% is lower than the category average of 1.36%.

Fidelity Select Health Care Portfolio (FSPHX - MF report) seeks capital growth over the long run. The fund invests a major portion of its assets in companies involved in designing, manufacturing and selling healthcare products and services. The fund invests in companies across the world.

FSPHX currently carries a Zacks Mutual Fund Rank #2 and has three- and five-year annualized returns of 21.2% and 18.2%, respectively. The annual expense ratio of 0.74% is lower than the category average of 1.36%.