Thoughts on Vanguard Health Care Fund?

[Mr. Green]

VGHCX. I have a very small percentage of my portfolio in it just as an experiment. You'll notice the last several years have been very good to this fund. I assume Obamacare has played a major role in that but it certainly seems that as the US population ages and technology brings about major health care changes, those health care companies will be the primary beneficiaries of that change.

[MoneyCat]

If the Supreme Court strikes down the portion of the ACA that allows subsidies for people in states using the federal exchange, then you can expect that fund's value to plummet.  It's a bit of a gamble right now.

[SantaFeSteve]

I think regardless of the ACA the fund is a good long-term option.  Unless our healthcare system ever evolves away from the current profit driven industry it is, healthcare providers/insurers will be a good investment.

Side note, I hope we do evolve away from the current profit based healthcare system, but I doubt it will happen soon enough for me to see it.

[Mr. Green]

I think regardless of the ACA the fund is a good long-term option.  Unless our healthcare system ever evolves away from the current profit driven industry it is, healthcare providers/insurers will be a good investment.

Side note, I hope we do evolve away from the current profit based healthcare system, but I doubt it will happen soon enough for me to see it.

I'm in this boat.

[jda1984]

I also hold some of this fund.  Seems like the demand for healthcare products and services will only increase in the mid-long term as the population ages.  It's been good to me so far, but I don't have a huge portion of my portfolio in it.

[zut]

I've been in this fund since 1997.  As long as healthcare costs and services are needed this is the place to be.

[Mr. Green]

Holy mother! I just saw the rate of return from its inception date. 17.43% since 1984. That's pretty insane.

[pdxvandal]

I have about 17k in this fund with a cost basis of 10k. It's done very well and I expect it to perform at least decently for the long-term, although I don't plan to add new money to it.

[ClaycordJCA]

I'm on the same page and similarly devoting a small % of my equity allocation to  a couple of healthcare funds.  Population is getting older and healthcare needs will increase based on demographics, Affordable Care Act or no Affordable Care Act.

[Dances With Fire]

Years before I found MMM and Bogleheads, Vanguard Health was my largest holding.

I like this fund, however the price movements during the last two bear markets made me rethink the risk that I was taking. Also my age and the over-all growth of my portfolio made me to slooowly DCA out of this fund into a more balanced portfolio with index funds.

[forummm]

I wouldn't put more than 5% of my portfolio into any concentrated industry. This one is particularly prone to political risk at the moment. Not just with the King case, but with a new president (of either party), things could change quite a bit. The ACA is a huge gift to the industry, and the index has tripled since its passage. The new GOP proposal would undo a lot of that. The amount we spend on healthcare is completely unsustainable. If we switched to a more reasonable public policy (pick any other system in the industrialized nations) revenues to the industry could be cut in half (and profits possibly eliminated). Why do we pay literally twice as much for the same drugs as Germany, France, Japan, etc? There's no reason for that other than to pad the profits of those companies (many of which are actually foreign anyway). Pharmaceuticals is half of the index.

[Mr. Green]

I wouldn't put more than 5% of my portfolio into any concentrated industry. This one is particularly prone to political risk at the moment. Not just with the King case, but with a new president (of either party), things could change quite a bit. The ACA is a huge gift to the industry, and the index has tripled since its passage. The new GOP proposal would undo a lot of that. The amount we spend on healthcare is completely unsustainable. If we switched to a more reasonable public policy (pick any other system in the industrialized nations) revenues to the industry could be cut in half (and profits possibly eliminated). Why do we pay literally twice as much for the same drugs as Germany, France, Japan, etc? There's no reason for that other than to pad the profits of those companies (many of which are actually foreign anyway). Pharmaceuticals is half of the index.

Church. If it doesn't change then it's a good place to be. If it does change, then it's not. I'm betting we won't see profits go out the window. Too much big money lobbying against that.

[MissPeach]

I remember in the Bogglehead books that the healthcare indexes are the only ones that have beaten e major ones (like DOW) historically so I think it's a good place to park a percentage of your money if you feel it's a good bet. I do agree with some of the previous posters that you should diversify and not put all your investments in the same industry. But if you are looking to add a new sector to your portfolio mix healthcare is typically a good bet.

[Mr. Green]

I remember in the Bogglehead books that the healthcare indexes are the only ones that have beaten e major ones (like DOW) historically so I think it's a good place to park a percentage of your money if you feel it's a good bet. I do agree with some of the previous posters that you should diversify and not put all your investments in the same industry. But if you are looking to add a new sector to your portfolio mix healthcare is typically a good bet.

It represents about 9% of my IRA, which represents only about a third of my overall portfolio so it's a pretty small holding. It's the only sector specific holding I have.

[GoldenStache]

The fund made roughly $230M yesterday with the Pfizer buy out of Hospira.

7,966,970   shares * $90 a share = $717,027,300   

as of 12/31/14  - $487,976,913

Gotta love those capital gains, but still small considering $44.6B fund

[skyrefuge]

The fund made roughly $230M yesterday with the Pfizer buy out of Hospira.

Maybe in some theoretical sense, but not in reality. The fund's NAV/share increased 1.5%, or about $65M. VTSMX gained 1.1% on the same day, so you can't say the differential between $230M and $65M was caused by a "down market". The fact that the fund holds both Hospira and Pfizer would also seem to complicate the "bump-in-Hospira-value = fund gains" theory. Though the share price for both companies rose, so presumably the differential came from all the other health care companies losing market value on the announcement. So the trick would have been for the fund to hold only Hospira and Pfizer, and no one else...geez, what stupid fund managers, why didn't they know to do that?!

[capitalninja]

I wouldn't put more than 5% of my portfolio into any concentrated industry. This one is particularly prone to political risk at the moment. Not just with the King case, but with a new president (of either party), things could change quite a bit. The ACA is a huge gift to the industry, and the index has tripled since its passage. The new GOP proposal would undo a lot of that. The amount we spend on healthcare is completely unsustainable. If we switched to a more reasonable public policy (pick any other system in the industrialized nations) revenues to the industry could be cut in half (and profits possibly eliminated). Why do we pay literally twice as much for the same drugs as Germany, France, Japan, etc? There's no reason for that other than to pad the profits of those companies (many of which are actually foreign anyway). Pharmaceuticals is half of the index.

Church. If it doesn't change then it's a good place to be. If it does change, then it's not. I'm betting we won't see profits go out the window. Too much big money lobbying against that.

+1

Until the fountain of youth is discovered, this fund is going to be a good long term holding.

Even when the fountain of youth is discovered, vials of the precious water will probably be sold by the healthcare industry. :-)

[Pootie22]

No invested in that particular Vanguard fund but I do have about 8k in PRHSX in a Roth IRA. Very pleased with the performance and since I have it in a Roth IRA I'm not very concerned about the taxes.

It has a slightly higher expense fee but the returns have consistently beaten nearly all of the funds in that category year after year (including VGHCX).

[TypicalVillain]

I thought about opening a small position in this too but I hate the idea that I'm chasing past performance. Also, is anyone concerned that this health fund has very low exposure to biotech?

[capitalninja]

I wouldn't buy this fund strictly based on past returns. It's very attractive because the expense ratio is very reasonable, provides an alternative type investment and in my case increases my exposure in the healthcare sector.  One of my main diversification goals is to not have anymore than 5% in any one company and no more than 20% in any given sector.

Given their profitability, most "diversified" portfolios tend to be overweight in the financial sector (typically in excess of 30%). Having a sector specific fund like this helps balance the allocations a bit better.

The healthcare industry isn't going away anytime soon. I personally like the fact that this fund isn't overly heavy in biotech. It's still the "boring" areas of healthcare (patient care, manufacture of drugs already approved, equipment sales, etc..) that generate the lion's share of revenues.

[forummm]

I'm repeating myself, but this fund is over 50% pharmaceuticals. If the US were to have more reasonable policies on pharmaceutical payments (like letting Medicare negotiate for drug prices), it would cut giant amounts of profit for those companies--literally tens of billions of dollars per year, and perhaps over $100B/yr. It's a risk. And politics is hard to predict.

[Abe]

Regarding pharmaceuticals: there is a long-term trend in lower profit due to increased expense of drug development and increased reluctance to spend on expensive drugs with minimal clinically significant benefits. This is especially evident in oncology, which is the main money-maker now that drugs for cardiovascular diseases have plateaued. Since every other country in the world already negotiates heavily on drugs, and US is starting to turn that way, pharmaceutical industries are starting to down-size drug development. This is a big problem for antibiotics, which have always been less profitable than oncology and CV drugs.

Regarding hospitals: lot of cutbacks even at large, profitable academic centers. I can't order a CT without having a bunch of people arguing with me over it. An MRI is even more ridiculous. Overall this is probably good for the healthcare cost issue (and we have seen slowing down of healthcare spending as percent of GDP), but not for investors in hospitals.

Long-term care facilities: plenty of heartless profits to be made here. Expect further regulation as the unacceptably poor care is investigated further by government and insurers.


Short story: lot of issues that people not versed in healthcare may not want to wade through, stick with broad-based funds. 

[forummm]

I have a lot of experience in the healthcare industry, I have 15 funds in my asset allocation plan, and I do not own this fund. It could be great. It could be terrible. I don't see a place for it in my portfolio. I already own all of the components of it through the other funds (but not so highly concentrated). Our health care system is unsustainable and will change because of the immense economic pressure. When that happens and what that means are hard to predict.

A lot of the big pharmaceutical companies have quite a few high-revenue drugs coming off patent in the coming years.

[forummm]

I just noticed that the PE is 37.5! Wow. And this is a very mature industry.