Sector Funds Overview
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Sector funds are mutual funds that focus their equity investments within a specific sector or industry of the economy.
Some sector funds use margin or leverage to magnify their reward potential. Inverse sector funds invest in financial instruments such as swap agreements that enable fund investors to profit from share price declines.
Buying and Selling Sector Funds
Many sector funds are no load funds, i.e., mutual funds offered without a sales charge. To discourage short-term trading and to protect the interests of long-term shareholders, some mutual fund companies charge a short-term redemption fee if the investor holds sector fund shares for less than a specified minimum period.
Rewards of Investing in Sector Funds
Since sector funds focus their investments on a specific sector, they provide investors opportunities to benefit from causal factors affecting specific sectors at a given point.
When such causal factors work in their favor, sector funds generally help investors earn higher returns than diversified mutual funds. The narrower focus of industry group funds enables them to amplify this benefit even more.
Risks of Investing in Sector Funds
Sector funds vary widely in volatility depending on the diversity and volatility of businesses as well as correlation between stock price movements of companies included in the fund. Sector funds in general tend to be less volatile than industry group funds.
Using Sector Funds
Prudent investors use sector funds in ways that leverage their return potential while managing portfolio volatility. Sector funds can be used to:
In addition to the above uses, a higher risk tactic is to trade sector funds for short-term profits by taking advantage of opportunities market volatility may create from time-to-time.
AlphaProfit Newsletter and Sector Fund Recommendations
AlphaProfit Sector Investors' Newsletter is the premier resource for sector investors. The Newsletter features sectors and industry groups with high-return potential.
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