The Vanguard Group is an investment management firm located in Malvern, Penn. With over $1.6 trillion in assets, the firm offers a variety of services from its market renowned mutual funds, ETFs, to numerous annuity products. One of their most well-known funds, the Vanguard Health Care Fund (VGHCX), is focused upon the health care industry with over $18.83 billion under management. Since its inception in 1984, the fund has diversified its investments into numerous subcategories within this sector. The fund is currently led by Edward Owens, a CFA charter holder and graduate of the Harvard Business School.
The stated objective of the fund is “to provide long-term capital appreciation by investing in stocks broadly representing the health care industry …” More specifically however, the fund differentiates its investments into five primary subsectors: health services, medical products, specialty pharmaceuticals, major pharmaceuticals and international markets.
Fundamental research is utilized to screen for companies with excellent financials, strong leadership and developmental research that has high potential for company growth. With a long-term approach to managing the fund, Owens typically invests into mid- and large-capitalization stocks due to their inherent nature of dominating the industry. Much uncertainly remains, however, due to pending healthcare reform, and as such, the aforementioned policy of investing into larger companies provides a minor buffer against sweeping changes.
In terms of risk management, as with any sector funds, the most prevalent underlying risk is its large investment of assets into the one particular sector. Due to the policy of the fund to invest a significant portion of their assets into the health care sector, the fund’s performance is highly subjective to changes in legislation and regulations. Due to the enormous subsidization and funding of healthcare services through programs such as Medicare, changes in policies will drastically affect this sector.
Furthermore, decisions rendered by bodies such as the FDA, can significantly affect individual companies as rejection of trials will render current research a sunk cost. In addition, it is not uncommon for lawsuits to be filed against pharmaceutical companies due to what is perceived as risky or dangerous treatments. As such, the fund’s exposure to the aforementioned risks is magnified more so then most mutual funds due to its large exposure in this sector.
In terms of performance, the fund has a cumulative 10-year return of 60.1% vs. the S&P 500’s 16.4%. The 15-year cumulative return is 504.5% vs. the benchmark’s 170.2%. For the two most recent years, however, the fund has underperformed the S&P by 5.5% and 8.9% respectively in 2009/2010. Nonetheless, when utilizing the Spliced Health Care Index benchmark, the fund has returned an average annual return of about 6.92%, vs. the Spliced benchmark of 1.72% for the last 10 years. Since its inception, the fund has returned an annualized return of 16.60%.
As demonstrated in the following tables and charts, the composite fund has over $18.83 billion under management, invested in 78 equities. The average P/E ratio and P/B ratio of the overall fund is 13.4 and 2.2 respectively. The following equities are the five largest holdings of the fund, and as expected, are concentrated into the health care sector. These five equities in conjunction comprise 23.84% of the overall portfolio.
Merck & Company (MRK, Financial)
Merck & Company is a global pharmaceutical company operating through four segments: pharmaceutical, animal health, consumer care and alliances. Their shares currently trade at $37.06, with a market capitalization of $114.39 billion. The average cost of MRK in the portfolio is estimated at $38.15, a potential 2.8% capital loss. From quarter to quarter, Owens increased his holdings of MRK by 3.97%. This in turn, elevated the position of MRK to become the largest holding, comprising 5.97% of the composite portfolio.
Merck has a P/E ratio of 72.20, a P/B ratio of 2.13, and a P/S ratio of 2.52 with reported earnings of $.51 for their most recent fiscal year. Their current dividend yield is 4.10%, with a margin of 2.14% on revenues totaling $45 billion. For the last five years, Merck has grown its revenues and free cash flow by 4.5% annually.
Merck recently acquired Inspire Pharmaceuticals for $430 million. In other developments, the FDA has approved Merck’s new Victrelis medicine for the treatment of hepatitis C. This is in conjunction with their new agreement with Roche to collaborate on developing new treatments for hepatitis C.
GuruFocus rated MRK with the business predictability rank of 1 star.
Pfizer (PFE, Financial)
Pfizer is an international pharmaceutical company operating through two segments: biopharmaceutical and diversified. Pfizer currently trades at $20.69, with a market capitalization of $163.47 billion. The average cost of Pfizer is $19.55, a potential 5.83% capital gain. Although Pfizer’s position was slightly reduced by 1.15% quarter to quarter, it is the second largest holding at 4.64% of the overall portfolio.
Pfizer has a P/E ratio of 19.71, a P/B ratio of 1.93, and a P/S ratio 2.47. Pfizer’s current dividend yield is 3.87%, with reported earnings of $1.05 for the year. Upon revenues of $67 billion, Pfizer earned $8.3 billion, a margin of 12.24%. Pfizer has grown its revenues and free cash flow annually by 4.1% and 6.3% respectively for the last 10 years.
The FDA recently approved Sutent, a Pfizer treatment for pancreatic tumors. In addition, Pfizer recently filed applications for new treatments of cell lung cancer with the FDA. In other developments, Pfizer recently announced plans to spend $21 million to upgrade their sterile manufacturing operation in Portage, Michigan.
GuruFocus rated PFE with the business predictability rank of 1 star.
Forest Laboratories (FRX, Financial)
Forest Laboratories develops, manufacturers, and sells pharmaceutical drugs to their consumers. Their shares trade at $35.37, with a market capitalization of $10.12 billion. The estimated acquisition cost of FRX per share is $48.71, a potential capital loss of 27.3%. Forest Laboratories position in the portfolio was reduced by 5.47% quarter to quarter. Nonetheless, Forest Laboratories is the third largest holding of the portfolio, comprising 4.60% of the overall equity portfolio.
Forest Laboratories has a P/E ratio of 9.85, and a P/S ratio of 2.28. For their fiscal year ending in 3/11, they reported earnings of $3.59. FRX reported a profit margin of 23.68% on revenues of $4.4 billion. For the last 10 years on an annual basis, Forest Laboratories has grown its revenues and earnings by 16.1% and 13.3% respectively.
The federal government has recently taken steps to attempt to oust the current CEO of the firm, Howard Solomon, by disallowing his firm to deal with Medicare, Medicaid, and the VA. This is due to Forest Laboratories settling to a US fraud case under the leadership of Solomon. FRX plans to contest this ruling as a significant portion of their revenue stream comes from the aforementioned programs. Analysts at Jefferies & Company recently placed a $42 price target on FRX, a capital gain of 18.7% from current trading prices.
GuruFocus rated FRX with the business predictability rank of 2 stars.
UnitedHealth Group (UNH, Financial)
The UnitedHealth Group offers health care coverage and related services via four segments: Health Benefits, Medicare, Community and State and OptumHealth. UNH trades at $49.74, with a market capitalization of $53.89 billion. Owens paid an average of $38.49 per share of UNH, yielding a potential capital gain of 29.2%.
The UnitedHealth Group has a P/E ratio of 11.59, P/B ratio of 2.09, and a P/S ratio of .57. Their most recent earnings were $4.29 for their 2010 fiscal year, with a dividend yield of 1.01%. Upon revenues of $94 billion, UNH reported a net income of $4.6 billion, a 4.92% profit margin. On an annual basis, UNH has grown its earnings and revenues by 39.8%, and 42.1% for the last 10 years.
A lawsuit was filed recently against UNH due to what was perceived as a violation of the Employee Retirement Income Security Act. Jefferies & Company placed a “buy” rating on UNH, and placed a price target of $60 on the stock, a 20.6% capital gain from the current trading price.
GuruFocus rated UNH with the business predictability rank of 2.5 stars.
McKesson (MCK, Financial)
McKesson is a provider of medicinal, information management, and healthcare services via its distribution and technology solutions segments. Their shares trade at $85.07, with a market capitalization of $21.45 billion. Each share of McKesson was acquired at an estimated price of $55.51, yielding a 53% capital gain.
McKesson has a P/E ratio of 19.46, a P/B ratio of 2.97, and a P/s ratio of .19. Their earnings for the year were reported at $4.29, with a minor dividend yield of .86%. Their profit margin for the year was 1.01% on revenues of $112 billion. For the last 5 years on an annual basis, McKesson has grown its revenues and earnings by 8.9% and 13.4% respectively.
JP Morgan and UBS raised their price targets on McKesson to $100 and $95 respectively. UBS placed a “buy” rating on MCK, while analysts at Barclay Capital placed an “overweight” weighting on the stock. In other news, McKesson issued guidance for earnings between $5.55 and $5.75 per share for the fiscal year of 2012.
GuruFocus rated MCK with the business predictability rank of 4 stars.
For more information regarding Edward Owens and the Vanguard Health Care Fund, please visit:
http://www.gurufocus.com/ListGuru.php?GuruName=Edward+Owens
The stated objective of the fund is “to provide long-term capital appreciation by investing in stocks broadly representing the health care industry …” More specifically however, the fund differentiates its investments into five primary subsectors: health services, medical products, specialty pharmaceuticals, major pharmaceuticals and international markets.
Fundamental research is utilized to screen for companies with excellent financials, strong leadership and developmental research that has high potential for company growth. With a long-term approach to managing the fund, Owens typically invests into mid- and large-capitalization stocks due to their inherent nature of dominating the industry. Much uncertainly remains, however, due to pending healthcare reform, and as such, the aforementioned policy of investing into larger companies provides a minor buffer against sweeping changes.
In terms of risk management, as with any sector funds, the most prevalent underlying risk is its large investment of assets into the one particular sector. Due to the policy of the fund to invest a significant portion of their assets into the health care sector, the fund’s performance is highly subjective to changes in legislation and regulations. Due to the enormous subsidization and funding of healthcare services through programs such as Medicare, changes in policies will drastically affect this sector.
Furthermore, decisions rendered by bodies such as the FDA, can significantly affect individual companies as rejection of trials will render current research a sunk cost. In addition, it is not uncommon for lawsuits to be filed against pharmaceutical companies due to what is perceived as risky or dangerous treatments. As such, the fund’s exposure to the aforementioned risks is magnified more so then most mutual funds due to its large exposure in this sector.
In terms of performance, the fund has a cumulative 10-year return of 60.1% vs. the S&P 500’s 16.4%. The 15-year cumulative return is 504.5% vs. the benchmark’s 170.2%. For the two most recent years, however, the fund has underperformed the S&P by 5.5% and 8.9% respectively in 2009/2010. Nonetheless, when utilizing the Spliced Health Care Index benchmark, the fund has returned an average annual return of about 6.92%, vs. the Spliced benchmark of 1.72% for the last 10 years. Since its inception, the fund has returned an annualized return of 16.60%.
As demonstrated in the following tables and charts, the composite fund has over $18.83 billion under management, invested in 78 equities. The average P/E ratio and P/B ratio of the overall fund is 13.4 and 2.2 respectively. The following equities are the five largest holdings of the fund, and as expected, are concentrated into the health care sector. These five equities in conjunction comprise 23.84% of the overall portfolio.
Top Five Holdings for Q1 | Symbol | Composition | Shares | Value |
Merck & Company | MRK | 5.97% | 34,030,248 | 1,123,340,000 |
Pfizer | PFE | 4.64% | 43,059,788 | 874,544,000 |
Forest Laboratories | FRX | 4.60% | 26,803,000 | 865,737,000 |
UnitedHealth Group | UNH | 4.49% | 18,685,100 | 844,567,000 |
McKesson | MCK | 4.15% | 9,889,900 | 781,797,000 |
Total Value of Portfolio | 18,830,000,000 |
Merck & Company (MRK, Financial)
Merck & Company is a global pharmaceutical company operating through four segments: pharmaceutical, animal health, consumer care and alliances. Their shares currently trade at $37.06, with a market capitalization of $114.39 billion. The average cost of MRK in the portfolio is estimated at $38.15, a potential 2.8% capital loss. From quarter to quarter, Owens increased his holdings of MRK by 3.97%. This in turn, elevated the position of MRK to become the largest holding, comprising 5.97% of the composite portfolio.
Merck has a P/E ratio of 72.20, a P/B ratio of 2.13, and a P/S ratio of 2.52 with reported earnings of $.51 for their most recent fiscal year. Their current dividend yield is 4.10%, with a margin of 2.14% on revenues totaling $45 billion. For the last five years, Merck has grown its revenues and free cash flow by 4.5% annually.
Merck recently acquired Inspire Pharmaceuticals for $430 million. In other developments, the FDA has approved Merck’s new Victrelis medicine for the treatment of hepatitis C. This is in conjunction with their new agreement with Roche to collaborate on developing new treatments for hepatitis C.
GuruFocus rated MRK with the business predictability rank of 1 star.
Pfizer (PFE, Financial)
Pfizer is an international pharmaceutical company operating through two segments: biopharmaceutical and diversified. Pfizer currently trades at $20.69, with a market capitalization of $163.47 billion. The average cost of Pfizer is $19.55, a potential 5.83% capital gain. Although Pfizer’s position was slightly reduced by 1.15% quarter to quarter, it is the second largest holding at 4.64% of the overall portfolio.
Pfizer has a P/E ratio of 19.71, a P/B ratio of 1.93, and a P/S ratio 2.47. Pfizer’s current dividend yield is 3.87%, with reported earnings of $1.05 for the year. Upon revenues of $67 billion, Pfizer earned $8.3 billion, a margin of 12.24%. Pfizer has grown its revenues and free cash flow annually by 4.1% and 6.3% respectively for the last 10 years.
The FDA recently approved Sutent, a Pfizer treatment for pancreatic tumors. In addition, Pfizer recently filed applications for new treatments of cell lung cancer with the FDA. In other developments, Pfizer recently announced plans to spend $21 million to upgrade their sterile manufacturing operation in Portage, Michigan.
GuruFocus rated PFE with the business predictability rank of 1 star.
Forest Laboratories (FRX, Financial)
Forest Laboratories develops, manufacturers, and sells pharmaceutical drugs to their consumers. Their shares trade at $35.37, with a market capitalization of $10.12 billion. The estimated acquisition cost of FRX per share is $48.71, a potential capital loss of 27.3%. Forest Laboratories position in the portfolio was reduced by 5.47% quarter to quarter. Nonetheless, Forest Laboratories is the third largest holding of the portfolio, comprising 4.60% of the overall equity portfolio.
Forest Laboratories has a P/E ratio of 9.85, and a P/S ratio of 2.28. For their fiscal year ending in 3/11, they reported earnings of $3.59. FRX reported a profit margin of 23.68% on revenues of $4.4 billion. For the last 10 years on an annual basis, Forest Laboratories has grown its revenues and earnings by 16.1% and 13.3% respectively.
The federal government has recently taken steps to attempt to oust the current CEO of the firm, Howard Solomon, by disallowing his firm to deal with Medicare, Medicaid, and the VA. This is due to Forest Laboratories settling to a US fraud case under the leadership of Solomon. FRX plans to contest this ruling as a significant portion of their revenue stream comes from the aforementioned programs. Analysts at Jefferies & Company recently placed a $42 price target on FRX, a capital gain of 18.7% from current trading prices.
GuruFocus rated FRX with the business predictability rank of 2 stars.
UnitedHealth Group (UNH, Financial)
The UnitedHealth Group offers health care coverage and related services via four segments: Health Benefits, Medicare, Community and State and OptumHealth. UNH trades at $49.74, with a market capitalization of $53.89 billion. Owens paid an average of $38.49 per share of UNH, yielding a potential capital gain of 29.2%.
The UnitedHealth Group has a P/E ratio of 11.59, P/B ratio of 2.09, and a P/S ratio of .57. Their most recent earnings were $4.29 for their 2010 fiscal year, with a dividend yield of 1.01%. Upon revenues of $94 billion, UNH reported a net income of $4.6 billion, a 4.92% profit margin. On an annual basis, UNH has grown its earnings and revenues by 39.8%, and 42.1% for the last 10 years.
A lawsuit was filed recently against UNH due to what was perceived as a violation of the Employee Retirement Income Security Act. Jefferies & Company placed a “buy” rating on UNH, and placed a price target of $60 on the stock, a 20.6% capital gain from the current trading price.
GuruFocus rated UNH with the business predictability rank of 2.5 stars.
McKesson (MCK, Financial)
McKesson is a provider of medicinal, information management, and healthcare services via its distribution and technology solutions segments. Their shares trade at $85.07, with a market capitalization of $21.45 billion. Each share of McKesson was acquired at an estimated price of $55.51, yielding a 53% capital gain.
McKesson has a P/E ratio of 19.46, a P/B ratio of 2.97, and a P/s ratio of .19. Their earnings for the year were reported at $4.29, with a minor dividend yield of .86%. Their profit margin for the year was 1.01% on revenues of $112 billion. For the last 5 years on an annual basis, McKesson has grown its revenues and earnings by 8.9% and 13.4% respectively.
JP Morgan and UBS raised their price targets on McKesson to $100 and $95 respectively. UBS placed a “buy” rating on MCK, while analysts at Barclay Capital placed an “overweight” weighting on the stock. In other news, McKesson issued guidance for earnings between $5.55 and $5.75 per share for the fiscal year of 2012.
GuruFocus rated MCK with the business predictability rank of 4 stars.
For more information regarding Edward Owens and the Vanguard Health Care Fund, please visit:
http://www.gurufocus.com/ListGuru.php?GuruName=Edward+Owens
