When I bought VGHCX over 10 years ago, I thought I was buying something which was a bit boring, not too flashy in regards to returns, and a bit defensive in nature in comparison to the broader equity markets.
Even though I was completely wrong on the first two reasons, I still believe that a broad-based healthcare fund can be a defensive holding.

Hi Skeet and Old Joe - After reading your article, it made me curious of where I was putting my money. Here's my breakdown. My funds are either at Vanguard or TRP. I have never been outside of either those 2 companies. My wife and I are 51, I retired from military in 2008, she works part time and I work full time. I am sure loaded up on International funds, maybe even some of them in the same arena.
1. US Equity Funds: PRWCX, PRSVX, VWELX, VWINX, VTSAX, VMRGX
2. World and EM Funds: PRSNX, TRAOX, TRAMX, VFSVX, VTIAX, VWIGX, TREMX, PRLAX, VEUSX
3. Health Care: PRHSX, VGHCX
4. Real Estate: VGSIX
5. Communication: PRMTX, PRGTX
6. Natural Resources: PRNEX
John

FYI: Copy & Paste 7/4/14: Amy Feldnan: Barron's:
I will ask some same question that I have several times in the past, do you own a health care fund ? If you don't you should.
Regards,
Ted
It has been 11 years since the human genome was first mapped, at a cost of $2.7 billion. Since then, the cost of DNA sequencing has dropped to about $1,000, and our understanding of the nature of disease has expanded exponentially. This has created a land rush for biotechnology companies, which use living organisms to develop medical treatments. For the past three years, biotech stocks have risen spectacularly, though this year things have been bumpier.
Eddie Yoon, manager of the $6.3 billion Fidelity Select Health Care Portfolio (ticker: FSPHX) and leader of Fidelity's 12-person health team, compares the innovations in biotech -- and the new companies being created -- to the explosion in technology and digital businesses that happened after Netscape's 1995 initial public offering. "The price point of sequencing the human genome has fallen so fast, and the early-stage pipeline for biotech is exploding right now," Yoon says. "That's what is driving innovation.
There are many ways to invest in that innovation, and the pros take very different views in terms of assessing value and risk. New drugs are altering the way we live, and areas like immuno-oncology hold enormous promise, but getting drugs to market is expensive, time-consuming, and far from a sure thing. With risks high, and valuations no longer cheap, minefields abound.
The best of the health-care funds (and funds with large stakes in health care) all have investments in biotech, but their strategies differ. At one end of the spectrum, Vanguard Health Care (VGHCX), the granddaddy of health funds with $37.7 billion in assets, takes a more conservative approach: It has just 12% in biotech -- a smidge less than the MSCI ACWI health-care index -- while its No. 1 holding is Merck (MRK), the global drug company with a strong pipeline. The fund rarely leads during market rallies, though it suffers less on the downside.
By contrast, the $2 billion Janus Global Life Sciences (JFNAX) has 32% in biotech, including three of its top five holdings: Gilead Sciences (GILD), a leader in HIV drugs, which has recently launched the hepatitis C blockbuster Sovaldi; Celgene (CELG), whose flagship product, Revlimid, fights blood cancers; and Biogen Idec (BIIB), which specializes in drugs for neurological disorders, autoimmune disorders, and hemophilia. Says Janus Global Life Sciences' manager Andy Acker: "We've seen an acceleration of innovation. More drugs are getting approved more rapidly at lower cost." In fact, he adds, since 1999, biotech-drug sales have soared from $5 billion to more than $100 billion, and the number of blockbuster biotech drugs has risen tenfold, from three to more than 30, a level of innovation that he expects will continue.
Matt Kamm, lead health analyst at Artisan and co-manager of the $1.1 billion Artisan Global Opportunities (ARTRX), which has 19% of its assets in health care, sees similar opportunities. He points to Regeneron Pharmaceuticals (REGN), whose drug Eylea treats macular degeneration, and which is the fund's No. 3 holding. As the lines blur between biotech and big pharma, Regeneron has set up a partnership with Sanofi (SAN.France), the Paris-based drug giant, also a holding. "It has allowed Regeneron to act like it has a giant balance sheet and build a pipeline, and it gives Sanofi growth and products for the future," Kamm says. In addition to Eylea, Regeneron (which trades at 26 times next year's earnings) has three drugs in Phase 2 and 3 trials, for cholesterol, rheumatoid arthritis, and atopic dermatitis, and another 11 in development. That diversified drug pipeline appeals to Kamm: "This is a risky business, even for the best companies, so it's important that companies make good, risk-adjusted decisions about research-and-development spending and have multiple shots on goal."
For similar reasons, Kamm likes Biogen Idec, which trades at 23 times next year's earnings. It has a new oral medication for multiple sclerosis, Tecfidera; a new product launching for hemophilia; and other treatments in the pipeline for MS, spinal muscular atrophy, and Alzheimer's -- all squarely part of the firm's focus on neurological disorders. "They're all high-risk as stand-alone opportunities," Kamm says. "But we think it's a broad enough pipeline."
WHAT OF THE WAVE of biotech IPOs earlier this year? Those are riskier. Janus' Acker, who invests in small-company biotech, keeps the holdings to small pieces of the portfolio. "Some of these are pretty early stage," he says. "We saw some frothiness in the market." Artisan's Kamm is steering clear completely. "They're coin tosses or lottery tickets," he says.
The Best Defense Is a Good Offense
With health-care funds returning 37% in the past year, the sector's no longer a defensive strategy. Below are five good options.
Assets Total Return*
Fund/Ticker Manager (bil) 1-Year 5-Year Top 3 Holdings**
Fidelity Select Health Care Portfolio/FSPHX Eddie Yoon $6.3 50.3% 27.6% Actavis, Biogen Idec, McKesson
Janus Global Life Sciences/JFNAX Andy Acker 2.0 45.0 25.7 Gilead Sciences, Aetna, Celgene
Prudential Jennison Health Sciences/PHLAX David Chan 2.5 36.6 28.4 Alexion, Biomarin, Vertex
T. Rowe Price Health Sciences/PRHSX Taymour Tamaddon 9.1 39.8 29.1 Aetna, Agilent Tech, Alexion
Vanguard Health Care/VGHCX Jean Hynes 37.7 37.9 22.4 Merck, UnitedHealth, Forest Labs
*Returns are annualized as of 07/02
**As of 05/31 Sources: Morningstar; fund companies
Fidelity's Yoon trimmed his fund's exposure to small biotech stocks early this year when he saw stretched valuations and decreasing quality. His fund now tilts its biotech holdings toward larger companies with stable free cash flows and encouraging pipelines. Plus, he has been diversifying holdings to areas such as medical devices, specialty pharmaceuticals, and life sciences. Where Gilead was once Fidelity Select Health Care's top holding, for instance, now it's Actavis (ACT), a global drug company with a huge business in generics. It may not be a sexy business, but Yoon argues that its global footprint in more than 100 countries, and its ability to leverage its sales force across multiple categories, gives it advantages. The shares, recently at $222, trade at 13 times next year's earnings estimates. "They are an innovator; they are a consolidator; and they are accessing the global market," Yoon says.
Regardless of the broader economy, Yoon argues, the rising demands of an aging population and an emerging middle class worldwide will continue to drive health care. "Just because the health-care space is up a lot," he says, "doesn't mean there aren't a lot of good opportunities in this business."

PRNHX up as a major holding, Restoration Hardware (RH), swung to a first-quarter profit and earnings beat analysts' estimates. Both VGHCX and PRHSX were up. ARTMX was up. Just one day in a multi-decade endeavor.

Well, MFO's Risk Profile search tool can handle comparisons of up 20 tickers, like:
http://www.mutualfundobserver.com/fund-ratings/?symbol=fpacx+prwcx+yackx+berix+vwelx+fpnix+dodbx+brufx+vwinx+sequx+vfinx+dodgx+dodix+fmagx+sgovx+tbgvx+vghcx+mapox+glrbx+fmilx&submit=Submit
The return group rankings are directly comparable at each age group (20, 10, 5, 3, and 1 year periods), but the actual metrics are only shown for the largest age group applicable.
Working to add all eval period metrics, plus life and full cycle metrics, to the single ticker MFO Risk Profile search tool. Hope to have available soon.

FKINX +5.04%
VGHCX +4.78%
MAPTX +3.92%
Sector rotation has been very interesting.

After a little investigation (emphasis on little) I have come up with a short list of low turnover equity funds:
Most Index Funds
Equity-centric Funds with less than 25% turnover:
LEXCX (0% turnover)
FAIRX(16%)
FLPSX(11%)
LCEIX(9%)
USAWX(16%)
VGHCX (21%)
ROGSX(15%)
TWEBX(8%)
FRUAX(5%)
DDVIX(6%)
NSEIX (22%)
ACSDX (12%)
LMPFX (2%)
Concentrated Funds with low turnover:
FAIRX
BCIFX
FPPFX
JENSX
and,
SHRAX - Clearbridge Investments portfolio manager Richie Freeman explains his brand of long-term investing:
Article:
Richie Freeman

Latest database evaluates 7734 funds across 95 categories (no new categories this quarter): oldest share class only, 1 yr and older, excludes money market, bear market, specialized trading, volatility, and specialized commodity funds.
Results identify 528 Great Owl funds, about 7% of all evaluated: 58 - 20 year, 91 - 10 year, 203 - 5 year, and 176 - 3 year.
Some new (or renewed, like GLRBX) Great Owls this quarter...
James Balanced: Golden Rainbow R GLRBX
Vanguard Health Care Inv VGHCX
Fidelity New Millennium FMILX
T. Rowe Price New Horizons PRNHX
T. Rowe Price Small-Cap Stock OTCFX
Tweedy Browne Value TWEBX
Third Avenue Real Estate Value Instl TAREX
Stralem Equity Instl STEFX
TETON Westwood Mighty Mites AAA WEMMX
Capital Management Small Cap Instl CMSSX
T. Rowe Price Instl Small-Cap Stock TRSSX
Intrepid Capital ICMBX
Manning & Napier Target Income I MTDIX
PIMCO Fundamental IndexPLUS AR A PIXAX
Fidelity Large Cap Growth Enhanced Idx FLGEX
Stewart Capital Mid Cap SCMFX
Probabilities I PROTX
UBS Dynamic Alpha A BNAAX
AllianzGI Ultra Micro Cap Institutional AUMIX
PNC Multi Factor Small Cap Core A PLOAX
Cohen & Steers Global Infrastructure A CSUAX
Some falling-off GO list...
Waddell & Reed High-Income A UNHIX
Janus Aspen Flexible Bond Instl JAFLX
Janus Flexible Bond D JANFX
ING Corporate Leaders Trust Series B LEXCX
AllianzGI Small-Cap Value Instl PSVIX
LKCM Fixed-Income LKFIX
Wells Fargo Advantage S/T Hi-Yld Bd Inv STHBX
Ave Maria Bond AVEFX
Villere Balanced Inv VILLX
Royce Special Equity Invmt RYSEX
T. Rowe Price Diversified Sm Cap Growth PRDSX
RiverPark Structural Alpha Institutional RSAIX
Whitebox Long Short Equity (Market Neutral) Institutional WBLFX
Brown Advisory Sm-Cp Fundamental Val Inv BIAUX
ASTON/River Road Select Value N ARSMX
Huber Capital Small Cap Value Inv HUSIX
There are 342 Three Alarm funds this quarter. Always entertaining, unless you own one. Here are some notables:
Calamos High Income A CHYDX
Waddell & Reed Bond A UNBDX
American Century Core Plus A ACCQX
CGM Mutual LOMMX
BlackRock Managed Volatility Inv A PCBAX
Hussman Strategic Total Return HSTRX
PIMCO Global Multi-Asset A PGMAX
PIMCO RealRetirement 2020 A PTYAX
Midas Perpetual Portfolio MPERX
First Eagle US Value A FEVAX
FundX Aggressive Upgrader UNBOX
Waddell & Reed Dividend Opps A WDVAX
Ivy Dividend Opportunities A IVDAX
BlackRock Capital Appreciation Inv A MDFGX
MainStay Cornerstone Growth A KLGAX
Auxier Focus Inv AUXFX
Gabelli ABC AAA GABCX
Appleseed APPLX
Artisan Small Cap Value Investor ARTVX
Parnassus Small-Cap PARSX
Royce Low Priced Stock Svc RYLPX
ASTON/TAMRO Small Cap N ATASX
Beck Mack & Oliver Global BMGEX
And, good to see Dodge & Cox shop performing like its old self...now has four funds on the Honor Roll:

Anyone have a favorite sub-advised mutual fund?

Wellington does a nice job with VWELX, VWINX, VGHCX, VDIGX, VCVLX, VEIPX and I probably could include a few more.
Mona

PressmUp,
I think it depends. A health care fund like VGHCX holds largely defensive positions because of its significant holdings in big pharma. Due to its large AUM, it can't take meaningful (sizable) positions in biotech stocks. This is why I like this fund in up and down markets.
Mona
Yes Mona...as it turns out, VGHCX is precisely what I own and have viewed as defensive. I do have some exposure to the high(er) flyers via POAGX. And ultimately, I have exposure to many of the above, plus some that most folks have never heard of due to my day-job in the health sciences industry.
Press

Over the last 10 years or so, I have also viewed HC as a largely defensive position and have benefited greatly from this stance. Perhaps it's time to re-think that.

PressmUp,
I think it depends. A health care fund like VGHCX holds largely defensive positions because of its significant holdings in big pharma. Due to its large AUM, it can't take meaningful (sizable) positions in biotech stocks. This is why I like this fund in up and down markets.
Mona

Redemption fees, at least at Vanguard, are redeposited into the mutual fund to help offset fund operating expense so in a sense these early redemption fee (not saying yours are early) lower the expense ratio of the fund. I get a warning at Vanguard just before I trade. Also, I get a calcuation of shares available for redemption without penalty when I execute a trade. Finally, Vanguard Brokerage offers similar etfs to their mutual funds, for example:
VGENX = VDE
VGHCX = VHT
VEIEX = VWO
VINAX = VIS
There are many more, but my point is these etfs are free to trade (in or out)...not transaction fee...no redemption fee.

Oddly, though the individual indexes are rather muted, looks like healthcare across the board is doing well today. VGHCX will have a very nice pop, as they had over $1B in FRX, and was the largest shareholder by a wide margin.

My understanding is that Biotech has had a hot/cold dynamic as an investment over the past 30 years. IPO have had a lot to do with their investment success. Technology and innovation has made this all possible. Here's a chart of the biotech IPOs over the last 30 years. Many of these spikes equates to investment outperformance.

reference:
insights-from-30-years-of-biotech-ipos
Natural gas over the last 30 years has followed a very different performance path, but technology and innovation again has lead this sector to new discoveries and efficiencies. Long term plentiful and inexpensive natural gas will boost manufacturing, fertlizer production, lower electrical generation costs, reduce carbon emission / btu as well as provide input components for a whole spectrum of chemical products.
Pairing these two sectors plays (using UNG or FBIOX) with Utility funds (GASFX, BULIX), chemical / Industrial manufacturing funds (VIS, FSCHX), Health Care funds (PRMSX, VGHCX, or others) seems like a good way to also incorporate these outperforming sectors.

No Confirmation Bias at all :)
ASTON/River Road Independent Value Fund ARIVX 97%
Greenspring GRSPX 96%
Akre Focus Fund AKREX 93%
Queens Road Small Cap Value Fund QRSVX 93%
Oakmark Equity & Income Fund OAKBX 91%
Appleseed APPLX 87%
Berwyn Income BERIX 83%
Jensen JENSX 83%
Vanguard Healthcare VGHCX 80%
FPA Crescent FPACX 78%
Janus Balanced Fund JANBX 73%

To be more specific, I'm referring to funds such as VGHCX and the like as long term investments, say 10 years.

Recently timed a haircut correctly for POAGX and VGHCX. Will position the proceeds into MERFX for a cash alternative for a bucket one holding. Kinda madcap I guess.
Looking to sell PAUDX this week. It goes down when the market goes up...and down when the market goes down. I wonder what sweet spot it's looking for? My biggest loser this year even including some EM bonds.
I'll also nibble at some REITs since they're getting dinged and throw off a good yield.

Dear Dex: If you still have a Vanguard account, get back in and stay the course. Being out of the market the last three years has cost you a lot of money !
Regards,
Ted
Vanguard Fund Recommendations:
VGHCX
VASVX
VHCOX
VWELX

Reply to @BobC:
Hi BobC,
Nobel Laureate Bill Sharpe would be proud of your understanding of the risk/reward tradeoff. His Sharpe Ratio was one of the earliest attempts to capture and characterize both critical aspects of the investment puzzle. Later researchers, standing on his shoulders, refined his formulations.
Indeed, if your active fund manager accepts more risk in a bull market scenario, an investor would expect outsized, above average returns. Of course, the reverse would be true under bear market conditions; under those circumstances, an investor would anticipated above average downward penalties. A symmetry should exist. ( A really skilled active fund manager should operate to dampen those downward penalties. )
That is one of the essential findings that evolved from Sharpe’s early 1960s Capital Asset Pricing Model (CAPM). From that model, much to Sharpe’s annoyance, research peers and financial journalists coined the sensitivity of an investment to the overall market movement its Beta attribute. Since those early pioneering days, other factors have been identified that contribute to the investments pricing mechanism (size, value, momentum). Also various offshoots of Prospect Theory suggest that Beta is likely not symmetrical depending on either an upward or downward trending equity marketplace (like the Sortino Ratio).
I suspect, based on the CAPM concept, Professor Snowball was astonished and disappointed by the general results he reported in his chosen illustrative example between the S&P 500 Index returns and those registered by the Large Cap Blend active fund category. The Large Cap Blend Capture Ratios fell short of their benchmark targets in both directions.
Given the long-term consistency of both the SPIVA report findings and its sister Persistency Scorecard semi-annual report conclusions, the Capture Ratios did not shock me. It is yet another illustration of the daunting hurdles that active fund management continues to trip-over.
Bill Sharpe explained this compactly and convincingly in his 1960s analysis using simple arithmetic and a market-wide overall returns balance equation. Among the active manager cohort, there must be a loser for every winner. Before costs, it is a zero sum game. Given research and trading costs, and other management fees, it is a negative sum game. That’s equivalent to a racetrack that typically only returns about 85 % of the total waged in any given race to its betting public. The 15 % withheld covers operating costs, profits, and State tax largess.
So, on average, active managers do not reward their clients with above average returns. That’s impossible. On the downside, active managers again failed to protect their customers portfolios. The evidence has been accumulating for decades and has reached overwhelming proportions. Skilled managers do exist, but they are rare.
Even those who sport an excess returns average record find persistency a daunting challenge. Costs matter greatly. The near empty winners circle is populated by active managers who aggressively control costs and have low portfolio turnover ratios.
These few managers do thrive. I’m sure you hunt them out for your clients. The Vanguard Health Care fund (VGHCX) is a prime example. Over the last decade, it has outperformed its benchmark in 9 out of 10 years, including two annual downward market thrusts. Its low cost structure and low portfolio turnover rates made it a likely candidate to do so.
Even institutions are finally realizing the extreme difficulties of identifying superior active fund managers. The huge California retirement agency CALpers will likely be increasing its passively managed equity portfolios from a 30 % overall level to a 60 % commitment in the near future. The CALpers team carefully screened active managers, but these chosen Ones failed the acid market exposure over fair test periods.
The Litman/Gregory mutual fund organization, which emphasized portfolios constructed by a diligent and detailed multi-manager selection process, has not generated superior rewards. Manager changes have been made far more frequently than planned. Litman/Gregory is discovering that management selection is a tough nut.
Allow me to take exception to your assertion that folks would be satisfied with an 85 % return when accompanied by an 80 % risk statistic (undefined at this moment). I’m sure some folks would find that an acceptable tradeoff. I’m equally sure many other folks would not be so happy, especially those with a long-term investment horizon.
So I would never be sanguine over quoting any single set of target numbers for investors as a whole. It depends on a multi-dimensional set of requirements, preferences, wealth status, knowledge base, age, goals, and risk adversity attributes. I’m sure I am preaching to the choir now.
Choosing successful active mutual fund managers is a hard road. I know you try; most everyone at MFO tries; so do I. I have prospered a little but have been saddled with some poor choices as well as some successful ones. I am not sure it is worth the effort and the heartache. I hope and wish you more success than I enjoyed in this demanding and vexing arena.
Best Wishes.

Will patiently wait years for VGHCX to tank and then buy. Just like I patiently held for years and then sold for very nice profit this year (and early I might admit). When vs Why rules baby!!!
Frankly, it was a sector fund and I wanted out. So I'm kidding. I will not be buying it back again.