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3 Healthcare Funds to Buy as Fed Signals Rate Cut

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Minutes from the Federal Reserve's July meeting, released on Wednesday, revealed that most officials agree to the possibility of lowering interest rates in September with a "vast majority" of participants agreeing that easing monetary policy would be appropriate if economic data continues to align with expectations.

While the benchmark interest rate remained unchanged at 5.25% in July, several officials presented arguments suggesting that recent improvements in curbing inflation and the rise in unemployment rates could justify a 25-basis point reduction. Although the decision was made to keep the rate steady for now, the minutes hint at a leaning toward a decrease in September if inflation continues to drop and there are signs of labor market strain.

The labor market has been a focal point of concern, with many officials noting that job gains may have been overstated. The Bureau of Labor Statistics' recent update on nonfarm payroll numbers indicates that gains from April 2023 to March 2024 could have been overstated by more than 800,000 jobs.

Per the current situation, the defensive sectors, such as healthcare, are compelling investment options. The healthcare sector could see advantages from low borrowing costs and a consistent demand for essential products and services. It has a low beta, suggesting that its stock values are less prone, to swings compared to the market. The consistent need for healthcare services positions these firms as investment options, offering stability in times of economic uncertainty.

Investing in healthcare mutual funds seems prudent as of now. Also, mutual funds, in general, diversify portfolios without several commission charges that are mainly associated with stock purchases and trim transaction costs (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

We have, thus, chosen three healthcare mutual funds that investors should buy now for the long term. These funds have a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), positive three-year and five-year annualized returns, minimum initial investments within $5000 and expense ratios considerably lower than the category average. So, these funds have provided a comparatively stronger performance and carry a lower fee.

Fidelity Select Pharmaceuticals Port (FPHAX - Free Report) fund invests most of its net assets in common stocks of domestic and foreign companies that are engaged in the research, development, manufacture, sale, or distribution of pharmaceuticals and drugs of all types. FPHAX advisors choose to invest in stocks based on fundamental analysis factors such as financial condition, industry position, as well as market and economic conditions.

Karim Suwwan de Felipe has been the lead manager of FPHAX since June 30, 2017. Most of the fund’s holdings were in companies like Eli Lilly (23.8%), Novo Nordisk (14.7%) and AstraZeneca PLC (9%) as of Mar 31, 2024.

FPHAX’s 3-year and 5-year annualized returns are 11.9% and 15.4%, respectively. Its net expense ratio is 0.74%. FPHAX has a Zacks Mutual Fund Rank #1.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Janus Henderson Global Life Sciences (JNGLX - Free Report) fund invests most of its assets, along with borrowings, if any, in securities of companies that, according to its portfolio managers, have a life science orientation. JNGLX has a fundamental policy to invest at least a small portion of its assets in companies that belong to the "life sciences" sector.

Andy Acker has been the lead manager of JNGLX since Apr 30, 2007. Most of the fund’s holdings were in companies like Eli Lilly (7.1%), UnitedHealth Group Inc (5.8%) and Novo Nordisk (5.2%) as of Mar 31, 2024.

JNGLX’s 3-year and 5-year annualized returns are 6.7% and 12.3%, respectively. Its net expense ratio is 0.80%. JNGLX has a Zacks Mutual Fund Rank #1.

Vanguard Health Care Fund (VGHCX - Free Report) invests the majority of its net assets in common stocks of foreign and domestic companies that are engaged in the development, production, or distribution of products and services related to pharmaceutical and medical supply companies as well as businesses that operate hospitals and other healthcare facilities. VGHCX advisors may also invest in companies that are engaged in medical, diagnostic, biochemical, and other research and development activities.

Jean M Hynes has been the lead manager of VGHCX since May 28, 2008. Most of the fund’s holdings were in companies like Eli Lilly (9.1%), UnitedHealth Group Inc (6.7%) and AstraZeneca PLC (6%) as of Apr 30, 2024.

VGHCX’s 3-year and 5-year annualized returns are 6.1% and 11.4%, respectively. Its net expense ratio is 0.35%. VGHCX has a Zacks Mutual Fund Rank #1.

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