| |
SECTOR FUNDS do what their name implies: They restrict investments to a particular segment -- or
sector -- of the economy. A fund like Northern Technology, for instance, only buys tech companies for
its portfolio. Munder NetNet cuts it even finer by holding only Internet-related stocks. Fidelity has a
whole stable of sector funds from Fidelity Select Insurance to Fidelity Select Automotive. The idea is to
allow investors to place bets on specific industries or sectors whenever they think that industry might
heat up.
While such a strategy might appear to throw diversification to the wind, it doesn't entirely. It's true that
investing in a sector fund definitely focuses your exposure on a certain industry. But it can give you
diversification within that industry that would be hard to achieve on your own. How? By spreading your
investment across a broad representation of stocks.
YAHOO! FINANCE TIP
Use the Yahoo! Finance mutual fund screener to find the right sector (specialty) funds for you.
|
Of course, such concentrated portfolios can produce tremendous gains or losses, depending on
whether your chosen sector is in or out of favor. In 1998, for instance, Northern Technology soared 83%
because Internet and computer companies were hot. Precious-metals specialist Scudder Gold,
meanwhile, plummeted 16.7% because gold and silver plunged.
Because of this specialization, any sector fund carries more risk than a generalized fund. But some
sectors are clearly more volatile than others. For example, Vanguard Utilities, which invests in staid
electrical companies, has about one-third the volatility of Merrill Technology, which buys supercharged
software makers.
|
| Next
in
"Types of Mutual Funds" | Related Articles | |
|
|
|