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What Are Sector Funds?

Sector Fund Definition, Strategies and Cautions



Sector Funds focus on a specific industry, social objective or sector such as health care, real estate or technology. Their investment objective is to provide concentrated exposure to specific industry groups, called sectors.

Sector Fund Strategies and Cautions:

Mutual fund investors use sector funds to increase exposure to certain industry sectors they believe will perform better than other sectors. By comparison, diversified mutual funds--those that do not focus on one sector--will already have exposure to most industry sectors. For example, an S&P 500 Index Fund provides exposure to sectors, such as health care, energy, technology, utilities, and financial companies.

Investors should be careful with sector funds because there is increased market risk due to volatility if the sector suffers a downturn. Over-exposure to one sector, for example, is a form of market timing that can prove harmful to an investor's portfolio if the sector performs poorly.

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