Sector Mutual Funds

What Are Sector Mutual Funds?

Well, sector mutual funds are a way in which people can invest in niche markets. If you think that the economy, or a part of the economy, is undervalued and will eventually become stronger, then this kind of investing is for you! You’ll be able to accurately pinpoint how you want to invest with sector mutual funds. Whether you want to invest in health care, biotechnology, or any other kind of technology, you can do it all with sector funds.

The most common story that people hear in regards to sector mutual funds is that they are very selective, and that if one company in a small economic industry suffers ill effects, then it will likely happen to the other companies in that industry. So, sector funds really only offer you a sliver’s worth of diversification, since all the stocks in that fund will come from the same sorts of companies.

Making Your Funds Grow

With the advantage of professional management, you’ll be able to see your sector mutual funds grow. Your portfolio manager will pick only the best performing mutual funds in the sector you decide on. If you’re really passionate about something, but you don’t want to risk betting all your cash on one horse, then sector funds are a sound way to put a little money towards something that truly interests you.

Risks Associated With Sector Mutual Funds

Of course, sector funds more often than not have more risks involved than you may expect at first – and they are a totally different animal and operate under different philosophies than other investments. Let’s look at a good example of this. Two of the top ten funds, according to Morningstar, come from the Natural Resource and Utilities sectors.

Before you put your money toward sector mutual funds – or any top performing mutual fund for that matter, you should review what that fund’s goals are, and it’s top holdings. Then you’ll have a firm grip of the concept and inner workings of the fund, and figure out if it will work for you.

Final Word on Sector Mutual Funds

Sector mutual funds might not be a core holding for your portfolio, but they do have their place, and can be a great investment if you can find the right niche for you. But, please keep in mind that sector mutual funds do carry a lot more risk than broadly diversified mutual funds – or mutual funds which address a wide array of sectors.

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