Sector Mutual Funds

As the name suggests, sector mutual funds are funds that are invested in certain sectors only. Sample sectors that have been beneficiaries of sector mutual funds are the technology sector and the precious metals sector. Sector mutual funds represent important sources of fund of these said sectors. With sector mutual funds, select sectors get the capital infusion that they require. Likewise, this capital is made available for them only. Such access is incomparable in these days when different industries, sectors and companies compete with each other for capital.

To the investor, sector mutual funds represent a chance to focus investments to one or two sectors. This is especially good whenever trends favor one sector to the other. In the 1990s, when internet businesses boomed, this sector, as well as the sector mutual funds for this sector, skyrocketed. Of late, the technology sector has been in flavor and this received a sizable chunk of sector mutual funds. The idea is that investors should be able to invest in sectors that they project to soon trend upwards.

While this seems to go against the ideal in mutual funds – that is, diversification – there are still opportunities to diversify holdings even within one or two sectors. Whether the sector is “hot” or not, there will be players within these that will experience an uptrend. Investment in these companies may prove to be lucrative for the investor. Likewise, investment in a “hot” sector may double the gains, compared to just investing in one or two companies within the sector.