Thinking of investing in VGHCX and/or Biotech - good or bad?

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Jesteroftheswamp
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Thinking of investing in VGHCX and/or Biotech - good or bad?

Post by Jesteroftheswamp »

Hello everyone,

I have a 401k that I max, Roth I max, and a taxable account with Vanguard total stock index and some others, basically a three fund portfolio with a little extra risk thrown in.

I am interested in Biotech as a LONG TERM INVESTMENT. What are the Boglers thoughts on this fund, and biotech in general? About 17% of this fund is in Biotech; any other recommendations in this field? I mention all of the above so you all know that I’m not just dumping all, or even necessarily a lot, of my eggs in this basket. However, I am interested in a fund that I hope will grow well above average.

*Also, it appears Vanguard’s ETF HEALTH CARE FUND VHT was almost HALF the expense ratio as the index fund of the same name, however the holdings are a bit different. What gives?
Last edited by Jesteroftheswamp on Sun Jan 05, 2020 6:26 pm, edited 1 time in total.
arsenalfan
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Re: Thinking of investing in VGHCX and/or Biotech - good or bad?

Post by arsenalfan »

Majority of replies will say don't do it, keep it simple 3-fund or 2-fund, SP500 or Total US index has most of the top holdings in any sector fund, etc.
Minority of replies will say they sector slice and dice.
Me, I'm the latter - have healthcare, biotech, med device, and IT slices. But each represents 2% max of the portfolio. Not enough to move the needle.
I believe a lot of it is FOMO fear of missing out.
livesoft
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Re: Thinking of investing in VGHCX and/or Biotech - good or bad?

Post by livesoft »

Bad move, but it's not my money. :)
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sometimesinvestor
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Re: Thinking of investing in VGHCX and/or Biotech - good or bad?

Post by sometimesinvestor »

Not that Jim cramer is a great authority but I agree with him that small bet of this type will help keep you interested
3funder
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Re: Thinking of investing in VGHCX and/or Biotech - good or bad?

Post by 3funder »

VGHCX is fine, but I doubt it will be VTSAX over the long haul. My advice is to stick to total market index funds. That said, if you want to make a bet on healthcare, go for it, but make sure it's a large enough bet to actually juice your returns if things go well; otherwise, what's the point in doing so?
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Re: Thinking of investing in VGHCX and/or Biotech - good or bad?

Post by lifeisinmirrors »

What is your reason for thinking biotech will outperform the market when it hasn't in the past? I would not overweight biotech because of high R&D costs, high regulatory risk, and low dividend yields.
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Re: Thinking of investing in VGHCX and/or Biotech - good or bad?

Post by retire2022 »

Jesteroftheswamp wrote: Sun Jan 05, 2020 4:29 pm Hello everyone,

I have a 401k that I max, Roth I max, and a taxable account with Vanguard total stock index and some others, basically a three fund portfolio with a little extra risk thrown in.

I am interested in Biotech as a LONG TERM INVESTMENT. What are the Boglers thoughts on this fund, and biotech in general? About 17% of this fund is in Biotech; any other recommendations in this field? I mention all of the above so you all know that I’m not just dumping all, or even necessarily a lot, of my eggs in this basket. However, I am interested in a fund that I hope will grow well above average.
Op I had the 125K of the active version VGHAX see what I had discussed about this: viewtopic.php?f=1&t=296291&hilit=vghax

I sold it recently and brought more shares of VGT (Tech) the Healthcare VGHCX VHCIX passive index version you are inquiring about was a little better than VGHAX for the last same five year period.

Right now I have 14% of VGT instead of the 7% of VGHAX (healthcare) all in my Roth IRA which is last to be drawn and most potential for growth.

Biotech is risky and sporadic.
Last edited by retire2022 on Sun Jan 05, 2020 7:03 pm, edited 1 time in total.
Topic Author
Jesteroftheswamp
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Re: Thinking of investing in VGHCX and/or Biotech - good or bad?

Post by Jesteroftheswamp »

arsenalfan wrote: Sun Jan 05, 2020 4:34 pm Majority of replies will say don't do it, keep it simple 3-fund or 2-fund, SP500 or Total US index has most of the top holdings in any sector fund, etc.
Minority of replies will say they sector slice and dice.
Me, I'm the latter - have healthcare, biotech, med device, and IT slices. But each represents 2% max of the portfolio. Not enough to move the needle.
I believe a lot of it is FOMO fear of missing out.
What’s a good biotech fund, Vanguard only has a fund with about 17% of holdings and an etf with 19% holding in biotech
Topic Author
Jesteroftheswamp
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Re: Thinking of investing in VGHCX and/or Biotech - good or bad?

Post by Jesteroftheswamp »

livesoft wrote: Sun Jan 05, 2020 4:41 pm Bad move, but it's not my money. :)
Elaborate please
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Jesteroftheswamp
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Re: Thinking of investing in VGHCX and/or Biotech - good or bad?

Post by Jesteroftheswamp »

lifeisinmirrors wrote: Sun Jan 05, 2020 5:41 pm What is your reason for thinking biotech will outperform the market when it hasn't in the past? I would not overweight biotech because of high R&D costs, high regulatory risk, and low dividend yields.
Over the last ten years, Vanguard’s has outperformed the market
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Jesteroftheswamp
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Re: Thinking of investing in VGHCX and/or Biotech - good or bad?

Post by Jesteroftheswamp »

retire2022 wrote: Sun Jan 05, 2020 6:01 pm
Jesteroftheswamp wrote: Sun Jan 05, 2020 4:29 pm Hello everyone,

I have a 401k that I max, Roth I max, and a taxable account with Vanguard total stock index and some others, basically a three fund portfolio with a little extra risk thrown in.

I am interested in Biotech as a LONG TERM INVESTMENT. What are the Boglers thoughts on this fund, and biotech in general? About 17% of this fund is in Biotech; any other recommendations in this field? I mention all of the above so you all know that I’m not just dumping all, or even necessarily a lot, of my eggs in this basket. However, I am interested in a fund that I hope will grow well above average.
Op I had the 125K of the active version VGHAX see what I had discussed about this: viewtopic.php?f=1&t=296291&hilit=vghax

I sold it recently and brought more shares of VGT (Tech) the Healthcare VGHCX passive index version you are inquiring about was a little better than VGHAX for the last same five year period.

Right now I have 14% of VGT instead of the 7% of VGHAX (healthcare) all in my Roth IRA which is last to be drawn and most potential for growth.

Biotech is risky and sporadic.
Why do you prefer the index fund over the ETF version?
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nisiprius
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Re: Thinking of investing in VGHCX and/or Biotech - good or bad?

Post by nisiprius »

Jesteroftheswamp wrote: Sun Jan 05, 2020 6:23 pm
lifeisinmirrors wrote: Sun Jan 05, 2020 5:41 pm What is your reason for thinking biotech will outperform the market when it hasn't in the past? I would not overweight biotech because of high R&D costs, high regulatory risk, and low dividend yields.
Over the last ten years, Vanguard’s has outperformed the market
Vanguard doesn't have a biotech fund.

Vanguard has an actively managed health care sector mutual fund (VGHCX), and, also, an index health care sector index mutual fund and ETF (VHCIX/VHT). Health care one of eleven GICS sectors. Biotechnology is a industry, a narrow part of the health care sector. The health care sector includes Health Care Equipment, Health Care Supplies, Health Care Providers & Services, Health Care Distributors, Health Care Services, Health Care Facilities, Managed Health Care, Health Care Technology, Biotechnology, Pharmaceuticals, and Life Sciences Tools & Services.

According to Vanguard, biotechnology only constitutes 12.4% of VGHCX.

Which is it that you think will outperform the market: the stocks of biotechnology companies, or the stocks of all health care companies?
Last edited by nisiprius on Sun Jan 05, 2020 7:02 pm, edited 1 time in total.
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retire2022
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Re: Thinking of investing in VGHCX and/or Biotech - good or bad?

Post by retire2022 »

Jesteroftheswamp wrote: Sun Jan 05, 2020 6:25 pm
retire2022 wrote: Sun Jan 05, 2020 6:01 pm
Jesteroftheswamp wrote: Sun Jan 05, 2020 4:29 pm Hello everyone,

I have a 401k that I max, Roth I max, and a taxable account with Vanguard total stock index and some others, basically a three fund portfolio with a little extra risk thrown in.

I am interested in Biotech as a LONG TERM INVESTMENT. What are the Boglers thoughts on this fund, and biotech in general? About 17% of this fund is in Biotech; any other recommendations in this field? I mention all of the above so you all know that I’m not just dumping all, or even necessarily a lot, of my eggs in this basket. However, I am interested in a fund that I hope will grow well above average.
Op I had the 125K of the active version VGHAX see what I had discussed about this: viewtopic.php?f=1&t=296291&hilit=vghax

I sold it recently and brought more shares of VGT (Tech) the Healthcare VGHCX VHCIX passive index version you are inquiring about was a little better than VGHAX for the last same five year period.

Right now I have 14% of VGT instead of the 7% of VGHAX (healthcare) all in my Roth IRA which is last to be drawn and most potential for growth.

Biotech is risky and sporadic.
Why do you prefer the index fund over the ETF version?
My apologies correction the VGHAX admiral versus Investors VGHCX are active and have higher fees than passive VHCIX apologies for the confusion.

Using morningstar fund comparison you can see using the inactive comparison the VHCIX did better the last five years compared to the active Healthcare VGHAX/VGHCX.

VHCIX has lower fees than VGHAX/VGHCX

https://www.morningstar.com/funds/xnas/vghax/analysis

the VHT ETF version has a different performance record than VHCIX you can add that symbol and do the comparison yourself
lifeisinmirrors
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Re: Thinking of investing in VGHCX and/or Biotech - good or bad?

Post by lifeisinmirrors »

In terms of dedicated biotech funds, there is IBB and Fidelity's actively managed FBIOX. FBIOX used to have a great track record, but has underperformed for the past 3-5 years. IBB has done better, but I don't think many people here would recommend either.
broadstone
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Re: Thinking of investing in VGHCX and/or Biotech - good or bad?

Post by broadstone »

According to https://investor.vanguard.com/mutual-fu ... ance/vghcx, VGHCX has been doing very well since 1984 returning 16% annually which is far better than VTSAX:

Image

So what's the downside of this fund other than the obvious exposure only to healthcare? Why don't more Bogleheads use this fund if it's outperformed VTSAX for so long?
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Re: Thinking of investing in VGHCX and/or Biotech - good or bad?

Post by flarf »

Part of the outperformance is likely explained by healthcare accounting for an increase share of GDP over time. It now stands at ~20%.

If you think that trend will continue, then VGHCX is probably going to continue beating VTSAX. However, if you think there is a limit to the share of GDP that will be spent on healthcare (due to legislation, regulation, consumer ability or otherwise), then the future may not be as bright. I'd note that a certain event five months from now could have an impact here, at least in terms of perception.
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Re: Thinking of investing in VGHCX and/or Biotech - good or bad?

Post by Chicken Little »

Jesteroftheswamp wrote: Sun Jan 05, 2020 4:29 pmWhat are the Boglers thoughts on this fund, and biotech in general?
I would never buy a "healthcare" fund to get exposure to biotech, and I wouldn't buy a sector fund, period. There are so many different sub-sectors in VGHCX that it can be hard to justify why it even exists. For example, the healthcare companies will ultimately have to pay for the pricey new biotech products, so those are two slices in the same fund that are not even necessarily on friendly terms.

I would never buy "mature" biotech outside of the broad indexes I already hold. I think the promise of biotech, and tech in general, is buying high-fliers before they take off. In that sense, what you might actually want is a Small-Cap-Biotechnology fund, if that even exists. It couldn't be an index, because a decent sized chunk of those small companies are probably going to zero.

If you really had to do this, and not just stick with broad-based indexes, I would really strive to find a reason. If I had to make something up, maybe;

1. Find an unmet need. There really aren't many options for Alzheimer's, so the bar for success is low. If you found a small company with an interesting new angle, they won't need to hit a home run to pay off, a bunt-single will be more than enough. For any condition with good treatment options, new products generally have to be clearly better, which is much harder.

2. Unfortunately, from an investor standpoint, you may want to concentrate on conditions that affect many instead of few. So if you were enamored with gene therapy, you might want to look for a gene therapy for Alzheimer's instead of a rare disease. You want something that will have a relatively large market if it's successful.

3. You're probably going to have to "time" it. I wouldn't be in a rush to jump in right after an IPO, with all the accompanying hoopla. Often, the air starts leaking from the balloon immediately. These new companies can tend to stumble a bit, so sometimes you can find value a year or two post-IPO before they accelerate and ultimately get bought (common end) or partner and grow large.

It's dicey at best. There's a lot of private investment right now. Besides the spigots being open with low rates, I think part of the reason money is flowing so well in biotech is that it is really transformative and the hit/miss ratio for venture capital doesn't have to be very high to come out ahead.
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