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Good Funds with Big Health-Care Exposure

The fate of health-care reform could have a big effect on these funds.

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Health care has been in the news a lot lately. Democrats in Washington have been working for months to push through health-care reform legislation, and late last year they passed separate bills in the House and Senate that still have to be combined into a single bill. Now Republican Scott Brown's victory in the January 19 special election for Ted Kennedy's old Senate seat has thrown a wrench in their plans. Brown will be the Republicans' 41st vote in the Senate, allowing them to filibuster the combined bill and prevent it from coming to a vote. Health-care reform isn't dead, but it now looks more difficult for Democrats to achieve.

Financial markets pay a lot of attention to what's happening in Washington, especially these days. Uncertainty over the status of reform was a big reason health-care stocks underperformed the market in 2009, and the stocks of big health insurers jumped ahead of the election when polls showed that a Brown victory was likely. There are plenty of other factors affecting health-care stocks, but right now the political ones are on the front burner.

Despite the uncertainty, some smart fund managers are fans of health-care stocks.  Fairholme (FAIRX), managed by newly minted Morningstar Manager of the Year (and Manager of the Decade) Bruce Berkowitz, had more than one third of its stock assets in health care as of Aug. 31, 2009. At 13% of assets,  Pfizer (PFE) was the top holding, and  Humana (HUM) and  Forest Laboratories (FRX) also cracked the top 10.

David Kathman has a position in the following securities mentioned above: VPMCX. Find out about Morningstar’s editorial policies.

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