Vanguard Health Care Fund

Scorecard
4 / 5 Stars
Lipper
4 4 5 5 2
Zacks Investment Research
3 (Hold)
Standard & Poor's
5 / 5 Stars
TheStreet.com
A+ (Buy)

#3 in Health

U.S. News evaluated 33 Health Funds. Our list highlights the top-rated funds for long-term investors based on the ratings of leading fund industry researchers.

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Performance

The fund has returned 36.41 percent over the past year, 22.22 percent over the past three years, 21.55 percent over the past five years, and 11.90 percent over the past decade.

Trailing Returns Updated 06.30.2014
Year to date 14.5%
1 Year 36.4%
3 Years (Annualized) 22.2%
5 Years (Annualized) 21.6%
10 Years (Annualized) 11.9%

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Summary

The Vanguard Health Care Fund invests in value-oriented stocks of large companies in various health-industry sectors.

As of July 03, 2014, the fund has assets totaling $37.70 billion. Its portfolio consists primarily of stocks of large-cap U.S. and foreign companies that develop, produce, or distribute healthcare supplies and services.

At times, the fund can be slow-moving compared to its peers because it's larger than every other healthcare fund combined, according to Morningstar. Currently, management prefers big pharmaceutical companies over their biotech counterparts, so the fund will lag when smaller biotech companies rally. When healthcare reform passed last year, a major source of uncertainty was removed, allowing this fund and others in its category to get a better idea of what the industry will look like in the future. The fund has returned 36.41 percent over the past year and 22.22 percent over the past three years.

Ed Owens, the fund’s manager since its 1984 inception, has maintained his value-oriented style and emphasis on diversification even as the fund’s size has swelled. Vanguard calls it “one of the most diversified healthcare funds out there.” The fund has returned 21.55 percent over the past five years and 11.90 percent over the past decade.

Investment Strategy

Ed Owens is a value-focused investor who hunts for stocks across healthcare subsectors, geographical areas (in the United States and abroad), and company sizes. Management invests in five areas of the healthcare industry: international stocks, pharmaceuticals, services, devices, and biotechnology. However, biotechnology plays a smaller role in this fund compared with other healthcare funds, according to Morningstar. The managers aim to buy stocks on the cheap and hold them for the long term. The fund also has a very low portfolio turnover, at just 6 percent as of late 2010. Chris McIsaac, head of Vanguard’s Portfolio Review Department, says, “Ed Owens would describe himself as a methodical investor. He likes to really understand and investigate the companies before he owns them. If he gets comfortable with a company and the stock represents a good value, then he’ll buy it and hold onto it.”

Role in Portfolio

Morningstar says the fund plays a specialty role in a portfolio. “Sector funds should play a small role in a diversified portfolio,”Morningstar says. “Making this sector fund a larger-than-usual part of a portfolio is an easier sell, though, given its broad diversification, modest volatility, and low costs. The fund is an especially good complement to investors with portfolios that are fairly light on large-cap healthcare stocks.”

Management

The fund’s investment adviser is Wellington Management Co. Ed Owens and Jean Hynes are the managers who oversee the fund’s day-to-day business. Owens has been the fund’s portfolio manager since its 1984 inception. He is a senior vice president and global industry analyst at Wellington Management and has been with the company since 1974. Hynes is a senior vice president and global industry analyst at Wellington Management and has been with the company since 1991. She has been associate portfolio manager of the fund since May 2008. Four healthcare analysts assist the managers.

Fees

Vanguard Health Care Fund has an expense ratio of 0.35 percent.

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Risk

Given the fund’s focus on a single sector of the market, there is an industry concentration risk. The healthcare industry can be affected by political, economic, regulatory, and supply-and-demand factors, according to the fund’s prospectus.

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Fund Opinions

The fund's Value Line Overall Rank, a measure of risk-adjusted performance and relative growth in fund returns, is 1 on a scale of 1 to 5, with 1 being the best and 5 the worst.

Value Line 2014-06-11

The fund's Value Line Growth Persistence rank, which awards funds that consistently outperform their broad universes, is 2 for one year, 2 for five years, and 2 for 10 years. Scores are on a 1 to 5 scale, with 1 being the best and 5 the worst.

Value Line 2014-06-11

The fund's Value Line Risk Rank, a measure of volatility, is 2 on a scale of 1 to 5, with 1 being the least volatile and 5 the most.

Value Line 2014-06-11

In the November 2009 edition of Morningstar's Fund Family Report, Dan Culloton calls the Vanguard Health Care an excellent fund that has done better than its peers and benchmark as well as the broad stock market over the past 10 years. He says, "Perhaps the most experienced sector-fund manager in the mutual fund business, Ed Owens, has run Health Care for more than 25 years, and he has a solid team from Wellington Management backing him up."

2010-01-27

In the August 2009 edition of Morningstar's Fund Family Reports, Dan Culloton says, "Excellent management and ETF-like expenses make this one sector fund worth having."

2010-01-27

Morningstar gives this fund a stewardship rating of B on a scale of A to F, saying, “This isn’t Jack Bogle’s Vanguard, but it’s still a fine steward of shareholders’ wealth. The family’s mutual ownership structure helps it offer low fees and keep investor interests paramount. A blemish-free regulatory record and loyal fund owners and employees also help make this a trustworthy fund.”

Morningstar 2010-02-17

In the annual Lipper/Barron’s Fund Families Survey for 2009, Vanguard ranks 40th out of 61 fund families surveyed.

2010-02-17

Morningstar gives this fund a stewardship rating of B on a scale of A to F, saying, “This isn’t Jack Bogle’s Vanguard, but it’s still a fine steward of shareholders’ wealth. The family’s mutual ownership structure helps it offer low fees and keep investor interests paramount. A blemish-free regulatory record and loyal fund owners and employees also help make this a trustworthy fund.”

Morningstar 2010-02-17

In the annual Lipper/Barron’s Fund Families Survey for 2009, Vanguard ranks 40th out of 61 fund families surveyed.

2010-02-17