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In a month that saw strong corporate profits turbocharge the Dow industrials above 13,000 for the first time, all sectors gained. Some soared much higher than others.Health care, natural resource and utility funds led the pack in April. That's because they are hurt the least by a U.S. economic slowdown, said Jordan Schreiber, senior manager of $437 million BlackRock Healthcare Fund.
Health care funds were fittest. They gained 5.97% on average, according to Lipper data. "They have the least exposure to the economy, as opposed to, say, the slowing consumer sector," Schreiber said.
Looking Up
Key parts of the sector had nowhere to go but up. "Pharma has taken a horrible bashing over the past few years," Schreiber said. Drug stocks make up about 60% of the health care sector.
Now the earnings outlook for drug firms is strong, he added.
A cloud on their horizon: The segment faces an unhealthy environment after next year's elections. Both Congress and the White House could be run by Democrats. For many investors, that's a prognosis for more regulatory burdens, Schreiber said. Still, regulatory legislation isn't likely to occur for two more years.
Meanwhile, drug stocks are benefiting from the 2006 expansion of the Medicare program. That should lead to more drug sales, which more than offset the expected pinch in profit margins stemming from regulatory action.
Unit growth will also be helped by aging populations in emerging markets. "GDP growth in China and India is creating markets for Western medicine," Schreiber said.
Schreiber is bullish. Starting in 2009, the sector could slow for a year or two before resuming faster growth. "The health care sector has some real negatives," he said. "But the positives outflank them."
Intuitive Surgical, (ISRG) a top holding of his as of Jan. 31, gained 6.7% in April.
The firm is the leader in robotic prostate removal systems. Earnings per share are expected to grow 50% this year, according to analysts polled by Thomson Financial. "They've acquired key competitors. All they face are startups. Now they're entering the gynecology market," Schreiber said. "Initial acceptance is good."
Natural resource funds averaged a 4.57% gain in April. Crude oil and natural gas rallied after early April declines. But oil ended nearly unchanged.
Other commodity prices more than made up for energy's weakness. Ongoing economic expansion in emerging markets such as China fueled demand for industrial metals. Copper, for example, rose 13%.
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U.S. dollar weakness also helped. Most commodities are priced in greenbacks. The dollar's decline made it easier for foreigners to buy commodities, said Brian Hicks, co-manager of $1.2 billion U.S. Global Investors Global Resources Fund.
Joy Global, (JOYG) a holding in the fund's latest fiscal year, gets a large portion of revenue from sales of gear to coal miners. And soft coal prices have hurt sales to that segment. But global demand for other types of heavy mining equipment helped the firm scoop out an 18% gain last month.
And Hicks' fund had winners last fiscal year in oil and gas. Refiner Tesoro (TSO) revved up 21%. Gasoline inventories were at five-year lows, Hicks said. That kept demand for refinery usage high.
"Refineries were just coming off their annual maintenance cycle disruption," Hicks said. "And a fire at a Midwest refinery made the supply chain even tighter."
Hicks' outlook is bullish.
"Ongoing demand in emerging markets will remain strong," he said. "And investment in production has not kept demand."
Utility funds continued their hot streak. They gained 4% on average. Investors were drawn by yields and price appreciation as utilities showed an ability to grow earnings.
Tech And Telecom
Tech funds, often leaders in big bull markets, advanced 3.61% on average. Telecom funds averaged a 3.50% gain in April. The story was built on sound fundamentals.
"Revenue and earnings are coming through," said Timothy O'Brien, manager of $580 million Evergreen Utility and Telecom Fund.
The sector has rebounded since 2005. That's when it began to recover from the shackles of excess capacity. O'Brien is bullish. Smaller wireless carriers like Centennial Communications (CYCL) should be takeover targets as big carriers seek to patch holes in their coverage.
Gold funds averaged a 1.40% advance. Many investors flocked to precious metals as a hedge against inflation, said Thomas Winmill, manager of $175 million Midas Gold Fund.
Hicks said many Mideast investors bought gold to diversify away from currencies.
"It was a hedge against geopolitical tensions," he said.
Platinum, which has industrial uses, benefited from the commodity bull market.
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Prospectus
