During tough economic times, people tend to prioritize their health needs over discretionary spending. Healthcare companies, including hospitals and pharmaceutical companies, often have stable revenue streams and consistent demand for their services, regardless of the economic environment. As a result, healthcare companies tend to outperform other sectors during economic downturns.
The latest report from the Conference Board reveals that the Leading Economic Index (LEI) for the United States fell by 1.2% in March 2023, following a decline of 0.5% in February. This marks a 4.5% contraction over the six-month period from September 2022 to March 2023, a steeper rate of decline compared to the previous six months from March-September 2022, which saw a 3.5% contraction.
Justyna Zabinska-La Monica, Senior Manager of Business Cycle Indicators at The Conference Board explained that this trend points to worsening economic conditions ahead. The Conference Board forecasts that economic weakness will continue to intensify and spread more widely throughout the U.S. economy over the coming months, leading to a recession.
Certainly, the latest report on the CPI-U suggests that inflation in the United States may be increasing at a decelerating pace, with a smaller increase of 0.1% in March compared to a 0.4% increase in February. However, it's important to note that the current level of inflation still remains well above the target range set by the Federal Reserve.
The Fed's target range for inflation is typically around 2%, and the current level of 5% represents a significant overshoot. This has raised worries that sustained high inflation could lead to a recession.
Despite these challenges, a healthcare company like HCA Healthcare recently reported strong earnings and a positive outlook for the future. The company's Q1 2023 earnings report showed an increase in net income, higher revenues and a rise in same-facility equivalent admissions. HCA Healthcare's strong financial position can allow the company to invest in growth opportunities during a recession, potentially positioning it for long-term success.
Healthcare companies tend to have a low beta, meaning that they are less volatile than the overall market. The stability and necessity of healthcare services make healthcare companies a safe haven for investors during economic downturns.
Pharmaceutical companies, in particular, may be well-positioned during a recession due to the nature of their business. Many pharmaceutical companies have diversified portfolios of drugs that cater to various medical conditions, and the demand for these drugs remains relatively consistent regardless of the economic environment. During economic downturns, pharmaceutical companies may see increased demand for generic drugs as consumers seek to reduce healthcare costs.
In conclusion, the healthcare sector has historically been a stable and resilient industry during economic downturns, making it an attractive investment option for those seeking stability and lower risk. Companies that can adapt to changing circumstances, invest in growth opportunities, and have diversified portfolios may be particularly well-positioned for success during a recession.
Thus, it’s imperative for astute investors to place their bets on solid healthcare mutual funds for stable returns amid an economic downturn. Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
We have thus selected three such mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy), 2 (Buy), have positive three-year and five-year annualized returns, minimum initial investments within $5000, and carry a low expense ratio.
Health Care Services Portfolio (FSHCX) seeks a capital appreciation by investing its assets in common stocks of companies that are primarily involved in hospitals, nursing homes, health maintenance organizations, and other companies specializing in the delivery of health care services. It distributes dividends and capital gains twice a year, in April and December.
Justin Segalini has been the lead manager of FSHCX since Jan 28, 2016. Most of the fund’s holdings were in UNITEDHEALTH GROUP (24.2%), CIGNA CORP (8.6%), and HUMANA INC (7.8%) as of Nov 30, 2022.
FSHCX’s 3-year and 5-year annualized returns are 15.4% and 12.4%, respectively. Its net expense ratio is 0.71% compared to the category average of 1.03%. FSHCX has a Zacks Mutual Fund Rank #1.
Janus Henderson Global Life Sciences Fund (JNGLX) invests the majority of its assets in securities of companies that demonstrate a life science orientation, including any investment-related borrowings in its net assets.
Andy Acker has been the lead manager of JNGLX since Apr 30, 2007. Most of the fund’s holdings were in UNITEDHEALTH GROUP (6.6%), ASTRAZENECA PLC (4.4%) and ABBVIE INC (3.9%) as of Dec 31, 2022.
JNGLX’s 3-year and 5-year annualized returns are 14.3% and 10.9%, respectively. Its net expense ratio is 0.80% compared to the category average of 1.03%. JNGLX has a Zacks Mutual Fund Rank #1.
T. Rowe Price Health Sciences Fund (PRHSX) seeks long-term capital growth by investing its net assets into common stocks of businesses engaged in healthcare, medicine, or the life sciences, including those that conduct related research, develop, produce, or distribute related goods and services. All dividends and capital gains are annually disclosed.
Rodney M. Rayburn, since Jan 13, 2019, has been the lead manager of PRHSX since Jan 13, 2019. Most of the fund’s holdings were in UNITEDHEALTH GROUP (8.7%), THERMO FISHER SCIENTIFIC (5.1%) and ELI LILLY & CO (4.5%) as of Dec 31, 2022.
PRHSX’s 3-year and 5-year annualized returns are 13.5% and 10.3%, respectively. Its net expense ratio is 0.80% compared to the category average of 0.95%. PRHSX has a Zacks Mutual Fund Rank #1.
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