T. Rowe Price Health Sciences Fund (PRHSX) takes direct aim at the health care sector, looking to generate long-term capital appreciation via investing in what the manager believes to be some of the fastest growing segments of the American economy: pharmaceuticals, healthcare services, product and device makers, and biotechnology.

Manager Kris Jenner, who has been at the helm since early 2000, believes that the healthcare field is particularly attractive these days, due to the “unprecedented changes” that are sweeping the industry, namely the aging of the population and an increased emphasis on health-care cost containment. Utilizing fundamental, bottom-up analysis he looks to uncover stocks of companies whose earnings will grow faster than inflation and the economy in general. As a result, he typically invests more than 80% of the fund’s assets in the common stocks of domestic mid- to large-cap stocks deemed to be growth candidates.

The portfolio is generally heavily weighted towards the aforementioned sectors, with a more recent penchant for biotechs and pharmaceuticals. Indeed, nearly a third of the portfolio is currently made up of biotech, while a handful of pharmaceuticals such as Alexion Pharmaceuticals (ALXN), Merck (MRK), and Teva Pharmaceuticals (TEVA) sprinkling the top 10 holdings list.

Unfortunately, the strategy has not worked out too well of late, with broader market volatility taking a toll on the healthcare industry. Biotechs, because of the uncertainty surrounding future product development, have been among the biggest disappointments, while pharmaceuticals were dragged down further by concerns regarding upcoming patent expirations.

That said, management is not wavering in its approach. Jenner remains optimistic about the sector’s long-term outlook, believing that the recent downturn presents some attractive entry points for stocks that may have gotten unjustly caught up in the broader market weakness. He is nearly fully invested and recent indications are that he is especially optimistic about the hospital and pharmaceutical spaces, which should benefit from recent legislation and a greater percentage of insured Americans. Conversely, his sentiment has soured a bit on health maintenance organizations (HMOs) and medical device companies, which may face a stiffer headwind given the new health care reform put in place by Washington.

T. Rowe Price Health Sciences Fund may not be for everyone, but ought to pique the interest of those looking to add a healthcare presence to an already diversified portfolio. Despite more recent ebbs and flows, the fund has outpaced the Value Line Health Care objective group since its December 1995 debut,  and thus ranks ahead of its brethren for the trailing three-, five-, and 10-year periods through June 2010. And the cost structure is rather appealing also. It is a no-load fund, which boasts a relatively low expense ratio of 0.87. The $2,500 minimal investment is at the high end of the group, however. Potential investors should also remember that the industry-specific nature of the fund makes it highly susceptible to downturns in the healthcare sector.