Chuck Self quoted in Wall Street Journal: Health and Tech Funds Step Up
Posted on: 12/07/2014
Is it time to load up on health-care and technology funds? Or is it too late?
Health care has delivered the strongest mutual-fund performance of any U.S.-stock sector over the past five years, with a nearly 22% average annual return, according toMorningstar Inc. data. The tech sector’s annual return of 14.5% over that stretch trails that of several other sectors. But in November, tech’s 3.5% return beat health care’s 2.9% and made tech one of the month’s strongest U.S. sectors.
Looking ahead, there’s a case to be made for both sectors.
The health-care field—which includes medical equipment, health-care providers, pharmaceuticals, managed care and biotech—has been buoyed by several trends. These include an increase in U.S. insurance coverage under the Affordable Care Act, an aging American population, corporate growth through mergers and acquisitions, and a growing middle class in emerging markets.
The tech sector, meanwhile, is benefiting from an increase in corporate information-technology spending and a wave of innovations in mobile and cloud computing that are driving a surge in sales of mobile devices and the development of new technologies.
So, should investors jump into these two sectors?
Some investment managers are boosting their clients’ exposure to both health care and technology. But others are less enthusiastic—especially about technology, given its boom-and-bust history this century.
For starters, some analysts warn that investors thinking about adding health-care or tech funds to their portfolios might be surprised by how big a stake they already have in those sectors through broader funds.
“If you’re adding a specific allocation, you need to understand your existing aggregate holdings,” says Liam Timmons, president of Timmons Wealth Management, a registered investment adviser in Attleboro, Mass.
For instance, many funds are designed to track the S&P 500 index, which is about one-third health-care and technology stocks by weighting. Information technology recently accounted for 20% of the index’s market capitalization and health care 14.3%.
Mr. Timmons points out that funds in various categories can also have heavy weightings in health care and tech. One example: TheFidelity Growth Company Fund recently had 33% of its assets in technology and 22% in health care.
Yes to Both
Chuck Self, chief investment officer at iSectors LLC, an investment adviser in Appleton, Wis., says his firm is enthusiastic about both health care and technology. “We do not expect that what’s happening here is a one- or two-quarter event,” he says of the sectors’ recent gains. “We expect it will continue.”
Mr. Self says his company will allocate up to 30% to health care in some client portfolios, typically in the form of low-cost indexed holdings, such as the iShares U.S. HealthcareETF, whose top holdings include Johnson & Johnson , Pfizer Inc., Merck & Co., Gilead Sciences Inc. and Amgen Inc.
iSectors also recently made a commitment to technology. “In the second half of the year we went overweight on tech” in some portfolios, Mr. Self says, pushing the sector’s allocation to about 20 percentage points above its weighting in the S&P 500.