BY MURRAY COLEMAN, (Investor's Business Daily)

Some growth managers are taking a closer look at health care amid interest rate fears and a pullback in market-leading energy stocks.

Take a look at biotech. Since bottoming in September 2004, IBD's Biomed/Biotech group has been steadily moving up. It's now within range of its peak reached in June of that year.

"There's some renewed strength in health care, but big names like Genentech (DNA) and Amgen (AMGN) look like they've topped," said Gil Morales, who runs three hedge funds at Sierra Capital Investments. "It's not really clear yet where they're going from here."

Biotechs can be volatile. That's why Morales likes to use exchange traded funds. He monitors all ETFs on a daily basis. Right now, he says iShares Nasdaq Biotechnology Fund (IBB) might be a way to diversify your risk as markets unwind.

Under The Hood

"When you look at ETFs, you've got to check what stocks it gives the most weight to," said Morales. "This one has two strong biotech names in Celgene (CELG) and Gilead Sciences. (GILD) "

He says the ETF also has more pharmas and biotech names with strong pipelines.

"Its other top holdings look just OK," said Morales. "But this looks like a real good diversified way to play biotechs right now."

Money manager Doug Fabian also sees opportunities in health care.

"It's an area of the market that hasn't had as big of a run-up as energy and commodities," said the head of Fabian Financial Services. "Health care got off to a good start in the fourth quarter of 2005. But we'd like to see a clearer picture."

Until then, he's gaining exposure in the sector with iShares Dow Jones U.S. Healthcare Fund. (IYH) Fabian bought it early in January.

"Health care is a sector many investors think of as more defensive in nature," he said. "But it can do well even when the market isn't contracting. It has the potential to gain a lot of attention this year."

Giants Dominate

The ETF includes 171 names. The two giant pharmas, Merck (MRK) and Pfizer, (PFE) were top five holdings heading into February.

"They've been acting much better from a technical view lately," said Bruce Zaro, chief technical strategist at Delta Global Advisors. "That's providing a big lift for the whole sector."

He also likes prospects for the iShares Nasdaq Biotechnology Fund. "It has a nice orderly up trend, moving from 63 last April to 82 in early February," said Zaro. "But we'd still like to see stronger confirmation of a breakout."

As a result, he's also investing in iShares Dow Jones U.S. Healthcare Fund. "You've got to be very careful in this sector," said Zaro. "Some stocks are positioned to do well. But others could be on the verge of falling apart."

Now trading around 64, Zaro figures the ETF is approaching an attractive entry point again.

If the ETF hits a new high of 65.50, Zaro says he'll probably add to his positions. "If it goes past that, we'll be more convinced this ETF has legs," said Zaro.