A coming wave of drug-patent expirations has made many investors wary of health-care stocks. Forward-thinking health-care fund managers, however, are looking past the usual large-cap pharmaceutical suspects to find companies that will play a key—if far-less-glamorous—role in the future of health care: companies that help contain exploding medical costs. Managed-care providers, drug distributors, and health-care information technology companies all fit the bill. Fund managers are also venturing deeper into emerging markets, whose consumers are becoming more health-conscious. To find where managers with strong track records of balancing returns with risks have been allocating money, Bloomberg Rankings screened actively managed health-care mutual funds with more than $100 million in assets. The Bloomberg ranking gave equal weight to five criteria: total returns for one, three, and five years, and Sharpe ratios—which show how well a fund's returns compensate investors for the risk taken—for three and five years. The highest possible score is 100.

For all the worries about looming patent expirations, such megacap pharmaceutical names as Pfizer (PFE), Merck (MRK), and Novartis (NVS) still dominate numerous portfolios. Many new buys, however, are biotechnology companies that range in size from $202 million Zogenix (ZGNX) to $18.7 billion Genzyme (GENZ). A number of biotech companies favored by these managers either have—or are working to develop—treatments for central nervous system disorders, erectile dysfunction, or pain, including acute migraine.
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A coming wave of drug-patent expirations has made many investors wary of health-care stocks. Forward-thinking health-care fund managers, however, are looking past the usual large-cap pharmaceutical suspects to find companies that will play a key—if far-less-glamorous—role in the future of health care: companies that help contain exploding medical costs. Managed-care providers, drug distributors, and health-care information technology companies all fit the bill. Fund managers are also venturing deeper into emerging markets, whose consumers are becoming more health-conscious. To find where managers with strong track records of balancing returns with risks have been allocating money, Bloomberg Rankings screened actively managed health-care mutual funds with more than $100 million in assets. The Bloomberg ranking gave equal weight to five criteria: total returns for one, three, and five years, and Sharpe ratios—which show how well a fund's returns compensate investors for the risk taken—for three and five years. The highest possible score is 100.

For all the worries about looming patent expirations, such megacap pharmaceutical names as Pfizer (PFE), Merck (MRK), and Novartis (NVS) still dominate numerous portfolios. Many new buys, however, are biotechnology companies that range in size from $202 million Zogenix (ZGNX) to $18.7 billion Genzyme (GENZ). A number of biotech companies favored by these managers either have—or are working to develop—treatments for central nervous system disorders, erectile dysfunction, or pain, including acute migraine.
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Stock Picks of Top Health-Care Funds

The Hunt for Winning Health-Care Stocks
The Hunt for Winning Health-Care Stocks
A coming wave of drug-patent expirations has made many investors wary of health-care stocks. Forward-thinking health-care fund managers, however, are looking past the usual large-cap pharmaceutical suspects to find companies that will play a key—if far-less-glamorous—role in the future of health care: companies that help contain exploding medical costs. Managed-care providers, drug distributors, and health-care information technology companies all fit the bill. Fund managers are also venturing deeper into emerging markets, whose consumers are becoming more health-conscious. To find where managers with strong track records of balancing returns with risks have been allocating money, Bloomberg Rankings screened actively managed health-care mutual funds with more than $100 million in assets. The Bloomberg ranking gave equal weight to five criteria: total returns for one, three, and five years, and Sharpe ratios—which show how well a fund's returns compensate investors for the risk taken—for three and five years. The highest possible score is 100.

For all the worries about looming patent expirations, such megacap pharmaceutical names as Pfizer (PFE), Merck (MRK), and Novartis (NVS) still dominate numerous portfolios. Many new buys, however, are biotechnology companies that range in size from $202 million Zogenix (ZGNX) to $18.7 billion Genzyme (GENZ). A number of biotech companies favored by these managers either have—or are working to develop—treatments for central nervous system disorders, erectile dysfunction, or pain, including acute migraine.
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Fidelity Select Pharmaceuticals Portfolio
Fidelity Select Pharmaceuticals Portfolio
Fund Ticker: FPHAX

Score: 87.6 out of 100

Bought: Covance (CVD), a life sciences company; Genzyme (GENZ), a biotech company focused on rare genetic diseases

Sold: Health-benefits company WellPoint (WLP); pharmaceutical and medical products company AstraZeneca (AZN)

Top 5 Holdings: Johnson & Johnson (JNJ), Merck (MRK), Pfizer (PFE), GlaxoSmithKline (GSK), Novartis (NVS)

Fund holdings analysis is based on the fund's most recently disclosed full portfolio, for the month ending Nov. 30, 2010. The model used to create a score gives equal weight to five criteria: total returns for one, three, and five years and Sharpe ratios—which show how well a fund's returns compensate investors for the risk taken—for three and five years.
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Prudential Jennison Health Sciences Fund
Prudential Jennison Health Sciences Fund
Fund Ticker: PHLAX

Score: 83.9 out of 100

Bought: Mylan (MYL), a generic drug maker and distributor; Watson Pharmaceuticals (WPI), which makes and markets generic pharmaceuticals and has a branded pharmaceuticals business focused on urology and women's health

Sold: Human Genome Sciences (HGSI), which researches and develops proprietary pharmaceutical and diagnostic products; DaVita (DVA), a dialysis-services provider

Top 5 Holdings: Alexion Pharmaceuticals (ALXN), Incyte (INCY), BioMarin Pharmaceutical (BMRN), United Therapeutics (UTHR), Celgene (CELG)

Fund holdings analysis is based on the fund's most recently disclosed full portfolio, for the month ending Nov. 30, 2010. The model used to create a score gives equal weight to five criteria: total returns for one, three, and five years and Sharpe ratios—which show how well a fund's returns compensate investors for the risk taken—for three and five years.
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T. Rowe Price Health Sciences Fund
T. Rowe Price Health Sciences Fund
Fund Ticker: PRHSX

Score: 83.9 out of 100

Bought: Valeant Pharmaceuticals International (VRX), which develops drugs for central nervous system disorders and distributes generic and generic branded drugs in Latin American and Eastern Europe; HealthSpring (HS:US), a managed care provider (pictured)


Sold: Managed health-care company Humana (HUM); MedAssets (MDAS), a medical-billing software provider

Top 5 Holdings: Alexion Pharmaceuticals (ALXN), Gilead Sciences (GILD), Merck (MRK), Incyte (INCY), Celgene (CELG)

Fund holdings analysis is based on the fund's most recently disclosed full portfolio, for the month ending Nov. 30, 2010. The model used to create a score gives equal weight to five criteria: total returns for one, three, and five years and Sharpe ratios—which show how well a fund's returns compensate investors for the risk taken—for three and five years.
Healthspring, Inc.
Fidelity Select Medical Equipment & Systems Portfolio
Fidelity Select Medical Equipment & Systems Portfolio
Fund Ticker: FSMEX

Score: 83.2 out of 100

Bought: McKesson (MCK), a drug distributor; Shandong Weigao Group Medical Polymer (1066:HK), a Chinese manufacturer of disposable hospital products such as pre-filled syringes and blood bags


Sold: Express Scripts (ESRX), a pharmacy benefit-management and specialty managed-care company; Thoratec (THOR), a heart implants manufacturer

Top 5 Holdings: Covidien (COV), CR Bard (BCR), Edwards Lifesciences (EW), Illumina (ILMN), Medco Health Solutions (MHS)

Fund holdings analysis is based on the fund's most recently disclosed full portfolio, for the month ending Nov. 30, 2010. The model used to create a score gives equal weight to five criteria: total returns for one, three, and five years and Sharpe ratios—which show how well a fund's returns compensate investors for the risk taken—for three and five years.
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BlackRock Health Sciences Opportunities Portfolio
BlackRock Health Sciences Opportunities Portfolio
Fund Ticker: SHSAX

Score: 78 out of 100

Bought: Diversified health-care products and services companies Abbott Laboratories (ABT) and Johnson & Johnson (JNJ)

Sold: McKesson (MCK), which distributes pharmaceuticals, medical and surgical supplies, and health- and beauty-care products; DaVita (DVA), a dialysis services provider

Top 5 Holdings: Pfizer (PFE), Celgene (CELG), Bristol-Myers Squibb (BMY), Fresenius Medical Care (FMS), Aetna (AET)

Fund holdings analysis is based on the fund's most recently disclosed full portfolio, for the month ending Sept. 30, 2010. The model used to create a score gives equal weight to five criteria: total returns for one, three, and five years and Sharpe ratios—which show how well a fund's returns compensate investors for the risk taken—for three and five years.
Bloomberg
Franklin Biotechnology Discovery Fund
Franklin Biotechnology Discovery Fund
Fund Ticker: FBDIX

Score: 73.1 out of 100

Bought: Theravance (THRX), a biopharmaceutical manufacturer; NuPathe (PATH), a specialty pharmaceuticals company focused on central nervous system diseases (pictured, the company's transdermal patch for the treatment of acute migraine).


Sold: Shire (SHPGY), which markets, licenses, and develops prescription medicines; the Medicines Co. (MDCO), a critical-care-focused pharmaceuticals maker

Top 5 Holdings: Celgene (CELG), Gilead Sciences (GILD), Amgen (AMGN), Genzyme (GENZ), Alexion Pharmaceuticals (ALXN)

Fund holdings analysis is based on the fund's most recently disclosed full portfolio, for the month ending Sept. 30, 2010. The model used to create a score gives equal weight to five criteria: total returns for one, three, and five years and Sharpe ratios—which show how well a fund's returns compensate investors for the risk taken—for three and five years.
NuPathe
Manning & Napier Life Sciences Fund
Manning & Napier Life Sciences Fund
Fund Ticker: EXLSX

Score: 69.6 out of 100

Bought: United Therapeutics (UTHR), which develops drugs to treat vascular diseases; Hogy Medical (3593:JP), a supplier of hospital products to improve occupational safety and prevent infection

Sold: GenOptix (GXDX), a medical laboratory that provides services to hematologists and oncologists; Shandong Weigao Group Medical Polymer (1066:HK),a Chinese manufacturer of disposable hospital products such as pre-filled syringes and blood bags


Top 5 Holdings: Gen-Probe (GPRO), Alere (ALR), Zoll Medical (ZOLL), Cochlear (COH:AU), Sonic Healthcare (SHL:AU)

Fund holdings analysis is based on the fund's most recently disclosed full portfolio, for the month ending Nov. 30, 2010. The model used to create a score gives equal weight to five criteria: total returns for one, three, and five years and Sharpe ratios—which show how well a fund's returns compensate investors for the risk taken—for three and five years.
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Eaton Vance Worldwide Health Sciences Fund
Eaton Vance Worldwide Health Sciences Fund
Fund Ticker: ETHSX

Score: 63.3 out of 100

Bought: Shionogi & Co. (4507:JP), a Japanese drug manufacturer that licenses cholesterol drug Crestor (pictured) to AstraZeneca ; Seattle Genetics (SGEN), which discovers and develops monoclonal antibody-based drugs to treat cancer and related diseases


Sold: Diversified health-care product-and-service company Johnson & Johnson (JNJ); Covidien (COV), a global health-care products company

Top 5 Holdings: Novartis (NVS), Roche Holding (RO:SW), Pfizer (PFE), Amgen (AMGN), Genzyme (GENZ)

Fund holdings analysis is based on the fund's most recently disclosed full portfolio, for the month ending Sept. 30, 2010. The model used to create a score gives equal weight to five criteria: total returns for one, three, and five years and Sharpe ratios—which show how well a fund's returns compensate investors for the risk taken—for three and five years.
Bloomberg
Fidelity Select Health Care Portfolio
Fidelity Select Health Care Portfolio
Fund Ticker: FSPHX

Score: 60.3 out of 100

Bought: Kindred Healthcare (KND), which operates hospitals, nursing centers, institutional pharmacies, and a contract rehabilitation-services business; Shandong Weigao Group Medical Polymer (1066:HK), a Chinese manufacturer of disposable hospital products such as pre-filled syringes and blood bags


Sold: Zimmer Holdings (ZMH), whose products include orthopedic and dental reconstructive implants; diversified health-care benefits company Aetna (AET)

Top 5 Holdings: Medco Health Solutions (MHS), Illumina (ILMN), Covidien (COV), Merck (MRK), McKesson (MCK)

Fund holdings analysis is based on the fund's most recently disclosed full portfolio, for the month ending Nov. 30, 2010. The model used to create a score gives equal weight to five criteria: total returns for one, three, and five years and Sharpe ratios—which show how well a fund's returns compensate investors for the risk taken—for three and five years.
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Allianz RCM Wellness Fund
Allianz RCM Wellness Fund
Fund Ticker: RAGHX

Score: 50.7 out of 100

Bought: Novo-Nordisk (NVO), which focuses on diabetes care and products (pictured, one of the company's pre-filled insulin-delivery devices); Nichi-Iko Pharmaceuticals (4541:JP), a Japanese generic drug manufacturer


Sold: McKesson (MCK), which distributes pharmaceuticals, medical-surgical supplies, and health- and beauty-care products; Leroy Seafood Group (LSG:NO), which produces and markets ocean and farmed fish and seafood products

Top 5 Holdings: Teva Pharmaceuticals (TEVA), UnitedHealth Group (UNH), Cardinal Health (CAH), Shire (SHPGY), Allergan (AGN)

Fund holdings analysis is based on the fund's most recently disclosed full portfolio, for the month ending Sept. 30, 2010. The model used to create a score gives equal weight to five criteria: total returns for one, three, and five years and Sharpe ratios—which show how well a fund's returns compensate investors for the risk taken—for three and five years.
Novo Nordisk A/S
Vanguard Health Care Fund
Vanguard Health Care Fund
Fund Ticker: VGHCX

Score: 47.9 out of 100

Bought: Increased positions in Gilead Sciences (GILD) , which focuses on therapeutics for patients suffering from life-threatening diseases (pictured, one of the company's HIV drugs), and health-benefits company Wellpoint (WLP)


Sold: Mead Johnson Nutrition (MJN), which manufactures nutritional products for infants, children, and expectant and nursing mothers; Novo-Nordisk (NVO), which focuses on care and products for diabetes

Top 5 Holdings: Merck (MRK), Forest Laboratories (FRX), Pfizer (PFE), AstraZeneca (AZN), Abbott Laboratories (ABT)

Fund holdings analysis is based on the fund's most recently disclosed full portfolio, for the month ending Nov. 30, 2010. The model used to create a score gives equal weight to five criteria: total returns for one, three, and five years and Sharpe ratios—which show how well a fund's returns compensate investors for the risk taken—for three and five years.
Gilead
Fidelity Select Medical Delivery Portfolio
Fidelity Select Medical Delivery Portfolio
Fund Ticker: FSHCX

Score: 41.4 out of 100

Bought: DaVita (DVA), a dialysis-services provider; Amil Participacoes (AMIL3:BZ), a Brazilian provider of consulting services to hospitals and clinics

Sold: Reduced positions in diversified health-care benefits company Aetna (AET) and Lincare Holdings (LNCR), which provides respiratory-therapy services to home-based patients

Top 5 Holdings: Medco Health Solutions (MHS), Express Scripts (ESRX), UnitedHealth Group (UNH), McKesson (MCK), Humana (HUM)

Fund holdings analysis is based on the fund's most recently disclosed full portfolio, for the month ending Nov. 30, 2010. The model used to create a score gives equal weight to five criteria: total returns for one, three, and five years and Sharpe ratios—which show how well a fund's returns compensate investors for the risk taken—for three and five years.
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DWS Health Care Fund
DWS Health Care Fund
Fund Ticker: SUHAX

Score: 38.1 out of 100

Bought: American Medical Systems (AMMD), which supplies medical devices to doctors specializing in the treatment of urological disorders; Cephalon (CEPH), which develops and markets medications to treat central nervous system disorders, cancer, and pain (pictured, Nuvigel, a medication that treats sleep disorders)


Sold: ResMed (RMD), which makes and markets medical equipment for the treatment of sleep-disordered breathing; Cepheid (CPHD), which makes microfluidic systems to analyze nucleic acids in blood, urine, and other substances

Top 5 Holdings: Pfizer (PFE), Merck (MRK), Johnson & Johnson (JNJ), Abbott Laboratories (ABT), Amgen (AMGN)

Fund holdings analysis is based on the fund's most recently disclosed full portfolio, for the month ending Nov. 30, 2010. The model used to create a score gives equal weight to five criteria: total returns for one, three, and five years and Sharpe ratios—which show how well a fund's returns compensate investors for the risk taken—for three and five years.
Cephalon
Alger Health Sciences Fund
Alger Health Sciences Fund
Fund Ticker: AHSAX

Score: 37.7 out of 100

Bought: Cephalon (CEPH), which develops and markets medications to treat central nervous system disorders, cancer, and pain; Valeant Pharmaceuticals International (VRX), which develops drugs for central nervous system disorders and distributes generic and generic branded drugs in Latin American and Eastern Europe (pictured, some of the company's dermatological products)


Sold: Amgen (AMGN), which develops human therapeutics based on cellular and molecular biology; Edwards Lifesciences (EW) , which develops products and services to treat late-stage cardiovascular disease

Top 5 Holdings: Optimer Pharmaceuticals (OPTR), UnitedHealth Group (UNH), Auxilium Pharmaceuticals (AUXL), Abbott Laboratories (ABT), Human Genome Sciences (HGSI)

Fund holdings analysis is based on the fund's most recently disclosed full portfolio, for the month ending Oct. 31, 2010. The model used to create a score gives equal weight to five criteria: total returns for one, three, and five years and Sharpe ratios—which show how well a fund's returns compensate investors for the risk taken—for three and five years.

Valeant
Invesco Health Sciences Fund
Invesco Health Sciences Fund
Fund Ticker: HCRAX

Score: 33.9 out of 100

Bought: Pharmacy health-care provider CVS Caremark (CVS); Thermo Fisher Scientific (TMO), which makes scientific instruments, consumables, and chemicals

Sold: Global pharmaceutical companies Pfizer (PFE) and Merck (MRK)

Top 5 Holdings: Gilead Sciences (GILD), CVS Caremark (CVS), Thermo Fisher Scientific (TMO), Roche Holding (RO:SW), Abbott Laboratories (ABT)

Fund holdings analysis is based on the fund's most recently disclosed full portfolio, for the month ending Sept. 30, 2010. The model used to create a score gives equal weight to five criteria: total returns for one, three, and five years and Sharpe ratios—which show how well a fund's returns compensate investors for the risk taken—for three and five years.

Bloomberg
Putnam Global Health Care Fund
Putnam Global Health Care Fund
Fund Ticker: PHSTX

Score: 31.6 out of 100

Bought: China Kanghui (KH), a manufacturer of orthopedic devices for spine and trauma (pictured, one of the company's spine-stabilization devices); MicroPort Scientific (853:HK), whose products are used to treat vascular diseases

Sold: Cephalon (CEPH), which develops and markets medications to treat central nervous system disorders, cancer, and pain; Patterson Cos. (PDCO), which distributes dental products, veterinary supplies for companion pets, and rehabilitation supplies

Top 5 Holdings: Pfizer (PFE), Genzyme (GENZ), Abbott Laboratories (ABT), Medtronic (MDT), Amgen (AMGN)

Fund holdings analysis is based on the fund's most recently disclosed full portfolio, for the month ending Sept. 30, 2010. The model used to create a score gives equal weight to five criteria: total returns for one, three, and five years and Sharpe ratios—which show how well a fund's returns compensate investors for the risk taken—for three and five years.

CHINA KANGHUI HOLDINGS
Hartford Global Health Fund
Hartford Global Health Fund
Fund Ticker: HGHAX

Score: 30.1 out of 100

Bought: Life Technologies (LIFE), which makes products used primarily in life science research and the commercial manufacture of genetically engineered products; Auxilium Pharmaceuticals (AUXL), which develops and markets therapeutics to urologists, endocrinologists, and select primary-care physicians

Sold: King Pharmaceuticals (KG), which makes and markets primarily branded prescription pharmaceutical products; AMAG Pharmaceuticals (AMAG), which uses a proprietary nanoparticle technology for the development and commercialization of therapeutic iron compounds and novel imaging agents to aid in the diagnosis of cancer and cardiovascular disease

Top 5 Holdings: UnitedHealth Group (UNH), Pfizer (PFE), Incyte (INCY), Baxter International (BAX), Medtronic (MDT)

Fund holdings analysis is based on the fund's most recently disclosed full portfolio, for the month ending Nov. 30, 2010. The model used to create a score gives equal weight to five criteria: total returns for one, three, and five years and Sharpe ratios—which show how well a fund's returns compensate investors for the risk taken—for three and five years.
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