In the first quarter, among the three major U.S. indexes, both the Dow and the S&P 500 finished in the red. Although healthcare was one such S&P 500 sector that registered declines in the first quarter, it surpassed all the other sectors to witness highest venture capital funding.

Such a high level of venture capital funding in the healthcare sector indicated that innovation will reach exponential level. This is why investing in mutual funds with significant exposure to the healthcare sector could be one of the most suitable investment options at present.

Why Invest in Healthcare Mutual Funds?

After strong growth in the first month of this year, all the three indexes entered correction territory in February and then registered a sharp decline in March following the tech slump and trade war fears.Moreover, Wall Street’s “fear gauge,” the Cboe Volatility Index, surged 81% in the first quarter, marking its biggest quarterly increase since 2011, according to the WSJ Market Data Group.

Among the key S&P 500 sectors, only consumer discretionary and technology managed to end in the green, while the remaining finished in negative territory. Despite closing in the red, the healthcare industry raised venture capital of $6.85 billion in the first quarter of this year, accounting for 26.6% of the total venture capital funds, per a Dow Jones VentureSource report.

Venture capital funding in the healthcare sector rose 21% from last year’s fourth-quarter figure and 4% year over year, with Pacific Northwest being the major contributor. Bio-pharma companies constituted around 50% of the total venture capital funding, boosted by innovations in gene editing and cell therapies.

Top 5 Healthcare Mutual Funds to Buy

The aforementioned bullish factors call for investing in healthcare funds. We have, thus, selected five strong performing healthcare mutual funds. These funds have given impressive one-year annualized and year-to-date (YTD) returns. These funds boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio.

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 Health Care Portfolio (FSPHX - Free Report) invests a large chunk of its assets in securities of companies involved in design, manufacture, and sale of products as well as services related to the healthcare sector. The fund invests in common stocks of both U.S. as well as non-U.S. companies.

Further, as of the last filing, Unitedhealth Group Inc, Amgen Inc, and Becton Dickinson & Co were the top holdings for FSPHX. This Zacks Mutual Fund Rank #1 fund was incepted in 1981. FSPHX carries an expense ratio of 0.73% as compared with the category average of 1.30%.

Specifically, the fund’s one-year annualized and YTD returns are 16.2% and 5.2%, respectively. 

Hartford Healthcare HLS Fund IA (HIAHX - Free Report) invests a huge part 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.

Further, as of the last filing, Unitedhealth Group Inc, Medtronic Plc, and Bristol Myers Squibb Co were the top holdings for HIAHX. This Zacks Mutual Fund Rank #2 fund was incepted in 2000. HIAHX carries an expense ratio of 0.89% as compared with the category average of 1.30%.

Specifically, the fund’s one-year annualized and YTD returns are 10.2% and 1.7%, respectively. 

Franklin Biotechnology Discovery A (FBDIX - Free Report) invests the majority of its assets in securities of companies from the biotechnology domain. The non-diversified fund may invest a maximum of one-fifth of its assets in equities as well as debt securities of U.S. and non-U.S. biotech companies.

Further, as of the last filing, Celgene Corp, Alexion Pharmaceuticals Inc, and Incyte Pharmaceuticals Inc were the top holdings for FBDIX. This Zacks Mutual Fund Rank #1 fund was incepted in 1997. FBDIX carries an expense ratio of 1.02% as compared with the category average of 1.30%.

Specifically, the fund’s one-year annualized and YTD returns are 5.4% and 0.1%, respectively. 

Delaware Healthcare I (DLHIX - Free Report) seeks growth of capital for the long run mainly through capital appreciation. The fund will normally invest more than 80% of its assets in equity securities of companies based in the healthcare industry. The fund focuses on investing in companies that are involved in developing, producing and distributing products or services for the healthcare and medical industries.

Further, as of the last filing, Morphosys AG, Sanofi ADR, and Chugai Pharmaceutical Ltd were the top holdings for DLHIX. This Zacks Mutual Fund Rank #2 fund was incepted in 2007. DLHIX carries an expense ratio of 1.13% as compared with the category average of 1.30%.

Specifically, the fund’s one-year annualized and YTD returns are 21.9% and 1.2%, respectively. To see how this fund performed compared in its category, and other #1 and 2 Ranked Mutual Funds, please click here.

Fidelity Select Medical Equipment and Systems Portfolio (FSMEX - Free Report) invests a bulk of its assets in securities of companies that focus on research, development, manufacture, distribution, supply, or sale of medical equipment and devices and related technologies. The fund invests in securities of U.S. and non-U.S. companies. FSMEX seeks long-term capital appreciation.

Further, as of the last filing, Becton Dickinson & Co, Medtronic Plc, and Boston Scientific Corp were the top holdings for FSMEX. This Zacks Mutual Fund Rank #2 fund was incepted in 2007. FSMEX carries an expense ratio of 0.76% as compared with the category average of 1.30%.

Specifically, the fund’s one-year annualized and YTD returns are 16.3% and 5.4%, respectively.