There may be major difference among “sector” mutual funds, even those in the same sector. Health care funds, which led all categories of funds during the past 10 years, include funds that lean towards biotechnology stocks as well as funds that concentrate on other types of health care companies.
Biotech funds tend to be the most volatile (way up in 1999, for example, and way down in 2002), so investors should expect the highest returns, in return for accepting such risks. However, Fidelity Select Biotechnology, the oldest and largest biotech fund, wound up with 10-year returns of 10.3 percent, more than two points lower than the category average. Biotech funds may shine in the coming years but investors should realize that such funds provide only a narrow slice of the health care industry.
For broader exposure, the top-performing health care fund has been Vanguard Health Care, which returned 19.3 percent for the last 10 years. Investors in this fund get some exposure to biotechnology (15 percent of assets, as of last report) but they also get major drug companies (Pharmacia, Schering-Plough) and non-drug companies such as McKesson and HCA (formerly Hospital Corp. of America).
