Recent headlines surrounding the health care sector have been dire.
Over 100 rural hospitals have closed over the past decade, and over 700 more, representing one-third of the remaining facilities, are at risk of closing soon, according to the Center for Healthcare Quality and Payment Reform. Adding to this crisis are the Medicaid cuts and changes signed into law on July 4 by President Donald Trump in the One Big Beautiful Bill Act.
The government shutdown, now in its fourth week, further imperils additional Medicaid funding, and the lack of a deal on extending the Affordable Care Act tax credits could lead to hundreds of thousands of job losses and billions of dollars in reduced state revenues.
The shutdown and rural hospital closures show just how vulnerable traditional health care revenue streams can be, said Eric Croak, president of Croak Capital in Toledo, Ohio.
But despite the bleak statistics, health care funds may make for an attractive investment thesis, given the rising cost of care, drugs and aging in the U.S.
Growth potential — along with regulatory risks
But Wheeler Crowley, co-founder and financial advisor at CoFi Advisors in Portsmouth, New Hampshire, said his firm sees too many unattractive risks and variables to allocate client portfolios heavily toward health care.
The biotech market provides plenty of innovation opportunities, Crowley said, but trial results are volatile, and the success of these companies frequently depends too heavily on those results.
He advises clients that if half of their portfolio is “riding on regulatory miracles, that’s not a fund, it’s a lottery ticket.”
“The stronger health care funds tend to stick to infrastructure like surgical centers, diagnostic platforms, managed care and prescription ecosystems,” he said. “That’s where the low-hanging fruit is.”
A good health care fund shows pricing power, recurring demand and capital discipline, Croak said. Funds that are overweight companies with the benefit of long-term service contracts, recurring patient demand or patented treatment ecosystems can compound predictably.
On the other hand, a poor health care fund is usually overexposed to binary risk like regulatory approvals, trial results or reimbursement decisions, he said.
Croak advises investors to treat health care funds like they would utilities or staples.
Investors could end up with overlaps or low-conviction bets if they don’t carefully dissect what the fund actually owns.
Which health care funds have performed — or not — in recent years? Scroll down the slideshow below to see the 10 health care funds with the highest one-year annualized returns and the 10 health care funds with the lowest one-year annualized returns as of Sept. 30, 2025. All data is from Morningstar Direct.
