The Wall Street Journal-20080129-SmartMoney Fund Screen - Health-Care Funds

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SmartMoney Fund Screen / Health-Care Funds

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The recent economic slowdown doesn't seem to have spared many market sectors. Lipper tracks 62 fund categories and only two of those groups -- gold and short funds -- are in positive territory this year.

Still, some groups have at least stemmed the bleeding a bit. Health care is one. The typical U.S. diversified equity fund lost 8.7% between Dec. 31 and Jan. 24. Health-care funds, though, fell 5.4%. That isn't exactly cause for a celebration. However, health-care offerings are doing what they tend to do in this market environment: cushion a portfolio on the downside.

This week, our fund screen probes the health-care sector. We knocked out funds that charged a sales load. We also screened for funds with above average short- and long-term performance track records and cheap annual expenses. That left just three finalists. Those funds have posted a 4.2% drop this year on average, outperforming competitors. In addition, they have delivered an average annual return of 15.1% over the past five years. Those gains handily beat the typical domestic equity fund during the same time period.

These offerings tend to do well during slowdowns because even cash- strapped consumers still need to spend money on medicine and doctor's visits. But health-care funds carry unique risks. With the presidential campaign in full swing, the industry faces calls for reform that won't die down until a winner takes office, if then. Government reimbursement levels are also a constant worry for many drug firms, as well as patent expirations, weak drug pipelines and class-action lawsuits.

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A Shot in the Arm

These three health-care funds are top performers in their category and are

relatively inexpensive.

Fund (Ticker) 3-Year 5-Year

Year-to-Date 1-Year Average Average Expense

Return Return Annual Return Annual Return Ratio

Fidelity Select Medical Equip & Sys (FSMEX)

-2.5% 12.4% 9.6% 15.0% 0.93%

Janus Global Life Sciences (JAGLX)

-5.2 12.6 9.9 13.2 1.01

T. Rowe Price Health Sciences (PRHSX)

-5.0 9.9 14.2 17.2 0.87

Note: Data as of Jan. 24, 2008

Source: Lipper