After days in the dark, the U.S. biotechnology sector has recovered to normalcy, buoyed by an increased number of FDA approvals and continued influx of funds into the industry. Moreover, label expansion of existing high-profile drugs, pipeline progress, growing demand for drugs, an aging population and increasing healthcare spending have proved beneficial for the industry.
Biotech companies have been going public at an overwhelming rate this year. Under such widespread encouraging circumstances, adding healthcare mutual funds having significant exposure to biotech companies seems judicious.
Foreign Investment in US Biotech
Silicon Valley and Cambridge, MA have primarily been the front-runners in providing the largest growth of innovation in the biotechnology sector in the United States. This also reflects that the majority of foreign as well as domestic investors in the space target these areas.
Although North American investors account for about 99% of the funding in Silicon Valley and Cambridge, foreign funds, particularly from China, have been on a steady rise. Foreign investments in U.S. biotech is estimated to rise to $2 billion in 2018. Such a humungous influx of funds is expected to catalyze further the process of drug innovation.
Biotech IPOs on the Rise
A burgeoning economy and steady influx of funds make conditions ripe for diversification and further strengthening of the capital base. Owing to such reasons, a larger than ever number of biotech companies have been going public this year. Further, investors have been consistently investing more in newer startups.
As of Sep 7, about 38 biotech companies from the United States have listed their shares on stock exchanges. This has also resulted in such companies jointly raising about $3.9 billion from IPOs alone. This also marks the highest amount raised by biotech companies on market debut since 2000.
Biotech ETFs and indexes have had a bullish run in the year-to-date period. iShares Nasdaq Biotechnology ETF, SPDR S&P Biotech ETF, ProShares Ultra Nasdaq Biotechnology and NASDAQ Biotechnology Index have all rallied 7.5%, 10.2%, 10.4% and 7.5%, respectively.
3 Best Choices
We have, thus, selected three healthcare mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy) that are poised to gain from such factors. Moreover, these funds have encouraging one and five-year returns. Additionally, the minimum initial investment is within $5000.
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.
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 (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Fidelity Select Biotechnology (FBIOX – Free Report) 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.
This Sector – Health product has a track of positive total returns for more than 10 years. Specifically, the fund’s returns over the one and five-year benchmarks are 13.5% and 12.7%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
FBIOX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.73%, which is below the category average of 1.25%.
Janus Henderson Global Life Sciences Fund T (JAGLX – Free Report) 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.
This Sector – Health product has a track of positive total returns for more than 10 years. Specifically, the fund’s returns over the one and five-year benchmarks are 15.2% and 15.6%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
FSHCXhas a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.91%, which is below the category average of 1.25%.
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.
This Sector – Health product has a history of positive total returns for more than 10 years. Specifically, the fund’s returns over the one and five-year benchmarks are 6.1% and 10.5%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
FBDIXhas a Zacks Mutual Fund Rank #2 and an annual expense ratio of 1.02%, which is below the category average of 1.25%.
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