Sector Funds
These funds invest in securities of a specific industry or sector of the economy such as health care, high technology, leisure, utilities or precious metals.
Because such funds invest primarily in one sector, they do not offer the element of downside risk protection found in mutual funds that invest in a broad range of industries. However, the funds do enable investors to diversify holdings among many companies within an industry, a more conservative approach than investing directly in one particular company.
Sector funds offer the opportunity for sharp capital gains in cases where the fund's industry is "in favor" but also entail the risk of capital losses when the industry is out of favor.
While sector funds restrict holdings to a particular industry, other specialty funds such as index funds give investors a broadly-diversified portfolio and attempt to mirror the performance of various market averages.
Mutual Fund Selection:
Sector funds are suitable for investors seeking to invest in a particular industry who can monitor industry performance regularly and alter investment strategies accordingly.
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