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3 Reasons to Like This Health-Care Fund

Laura Pavlenko Lutton

Laura Lutton: One of our favorite funds in the health-care category is Vanguard Health Care (VGHCX). This is an actively managed fund, and it gets a Gold rating from Morningstar's analysts. That means that we have conviction in this fund's ability to outperform on a risk-adjusted basis over a full market cycle.

We like this fund for a number of reasons. We really like the management team. The fund's founding manager, Ed Owens, retired about two years ago, and so we've been watching the fund and its new management team to see how they would do on their own without Ed. We're pleased with how things are going.

The new lead manager is Jean Hynes. She has been a comanager on that fund since 2012, and she has a very strong stable of comanagers and analysts behind her. She is at Wellington, which is the firm behind most of Vanguard's actively managed strategies. This is a very seasoned team. We're very pleased with their long-term view on many key holdings in the health-care sector.

The second thing we like about this fund is its investment process. This is a proven investment thesis where the team looks for large-cap companies. These are blue-chip household names that you've heard of like Merck (MRK) and other big pharmaceutical companies. These are the mainstay holdings in the fund. The fund tends to hold these stocks for a long time.

What that gives the fund is stability during terms when the health-care industry and sector is under stress--or the stock market, in general. And that has led to strong risk-adjusted returns over the long term, particularly in times of trouble. So, the performance track record here has been strong, and we think that's a function of that strong investment process.

The third thing that we really like about this fund is its fees. Vanguard is known in the marketplace for its low-cost funds, and you can get this health-care fund for between 30 and 35 basis points, depending on how much money you have to invest initially. And that's very characteristic of Vanguard. We think they are a great steward of capital. They get one of our top Parent and Stewardship grades, and we think this is a great way to access health-care stocks in a mutual fund.