Healthcare has been the best performing sector among the broader S&P 500 index’s sectors with stocks rallying steadily this year. The Health Care Select Sector SPDR (XLV) has gained 11.3% on a year-to-date basis, impressively ahead of other major sectors such as consumer discretionary, technology and utilities.

Healthcare stocks have gained despite the Trump administration’s attempts to make certain fundamental changes in healthcare policies, which were promptly halted in Congress. With a divided Congress post-midterm elections in November, healthcare stocks are set for greater highs.

Therefore, it would be ideal to invest in a couple of mutual funds that could benefit from the healthcare stocks’ rally.

U.S. Healthcare Sector Looks Promising

National spending on healthcare rose for a second year in 2017, according to a U.S. Centers for Medicare and Medicaid Services (CMS) report on Dec 6. Healthcare funding grew 3.9% to $3.5 trillion last year, propelled by higher medical products and services costs.

Healthcare spending by major fund sources such as private health insurance, Medicare and Medicaid also witnessed an upward movement in 2017, per the CMS report. Continuing research and foreign investments in U.S. biotechnology, addition of new medical equipment, rising demand for drugs to treat rare diseases and an aging population helped boost healthcare stocks.

Factors to Boost U.S. Healthcare in 2019

A majority of healthcare companies in the United States benefit from consistent cash inflow and notable profit margins. Greater technological investment and innovation to increase efficiency and lessen wastages are likely to bring down overall treatment costs and medical product prices.

The implementation of artificial intelligence, machine learning, big data along with other technological advancements in healthcare could remarkably increase the sector’s proficiency, thus boosting it.

In addition, new tax reforms have provided more healthcare companies with cash. This could help these companies invest in healthcare start-ups or participate in mergers and acquisitions to diversify their business. Overall, all these operations are bound to get healthcare stocks soaring ahead.

3 Mutual Funds to Buy

Given such broadly encouraging conditions which are poised to boost the overall healthcare sector, it would be prudent to add mutual funds from the space.

We have selected funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5,000.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds.

Fidelity Select Portfolio Medical Technology And Devices Portfolio (FSMEX - Free Report) invests 80% of its assets in securities of companies engaged in manufacturing and distribution of medical devices and equipment. The fund invests in both U.S. and non-U.S. stocks.

This Zacks sector – Health product has a history of positive total returns for more than 10 years.

FSMEX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.75%, which is below the category average of 1.28%. The fund has three and five-year returns of 20.8% and 19.3%, respectively.

Vanguard Specialized Portfolios Health Care Fund (VGHCX - Free Report) seeks long-term capital growth by investing in securities of companies that are engaged in production and distribution of products and services from the healthcare industry. The fund may invest about half of its assets in non-U.S. stocks.

VGHCX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.38%, which is below the category average of 1.28%. The fund has three and five-year returns of 6% and 11.7%, respectively.

T. Rowe Price Health Sciences Fund (PRHSX - Free Report) seeks growth of capital in the long term. The fund invests the lion’s share of its assets in companies that deal in manufacturing or distribution of healthcare-related products and services.

PRHSX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.77%, which is below the category average of 1.28%. The fund has three and five-year returns of 10% and 14.6%, respectively.