Tuesday, August 17, 2010

These Are Some of the Characteristics of Sector Funds

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A sector fund is a type of investment that falls under the mutual funds category. It is an investment that concentrates on a specific or narrow market section. For example, there are those that invest in energy, utility goods, technology or biotechnology. In other words, they are industry specific. They tend to experience high price volatility because, what may be affecting one sector of the economy may not be experienced in another.

Sector funds require a lot of keenness in their performance because, they call for proper timing. The timer has to be updated daily at the close of each trading day. The investments are characterized by three very important factors that investors need to be aware of. The first one is basically a repetition, and it is the fact that the funds are focused on stocks within a certain line of operation, business or industry.

There are numerous sectors in which sector funds can be invested in, but most financial reporters prefer to group them into eight categories. These are Technology, Financial, Communications, Utilities, Natural Resources, Healthcare, Real Estate and Precious Metals. The next characteristic is that the investments have a concentrated number of holdings. The third characteristic is that they are more volatile than all other investments in the overall stock market.

Investing in these stocks is purely an individual decision, but should you as an investor decide to invest in them, be assured that, you will derive benefits from the funds. One great advantage is that the stocks enable you to experience diversification of returns as well as getting a chance to spread risk over a large investment ground. The funds also give you the opportunity to speculate and bet on those funds that you think will rise in value over time.

Peter Gitundu creates interesting and thought provoking content on mutual funds. For more information, read more of his articles here SECTOR FUNDS If you enjoyed this article, make sure you read my most recent posts here MUTUAL FUNDS

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