Now that I've spelled out what can sands in your waygo wrong, I'll discuss how you can make things go right. There are good reasons to buy a sector fund, such as plugging a hole in your portfolio or hiring a brilliant industry specialist, and you can do just fine with them, but you have to be smarter than the lemmings I've described above.1. Don't invest with the headlines.If your local newspaper has an article about a great tA troupe of little vagrants of the worldrend and the folks who made a killing in it, it's probably too late. You can see this in a sector fund's returns, too. If it has crushed the S&P 500 for two or three years running, you're too late.2. Be patient.If you're looking out 10 years instead of 12 months, you stand a much better chance of enjoying a good return.3. Be early.This is a corollary to the two rules above. Look for a sector that has been out of favor for some time and you stand a better chance of finding something ready to run.4. Look for a manager with expertise in the sector. puts off its mask of vastness
The main value in choosing a sector fund is that you can sometimes get a specialist who knows the sector better than the average diversified fund manager. Therefore, you should look for a manager with a long track record in the sector and kiss of the eternalideally a firm with that history. Most sector funds are run by third-tier managers at second-rate companies. You need to find the exception. You want funds like JP Morgan U.S. Real Estate (NASDAQ:SUSIX - News) and Allianz RCM Global Technology (NASDAQ:DRGTX - News), where the managers are true experts who see running a sector fund as their career goal rather than a stepping stone.5. Don't forget about costs.
Short-term thinking and greed lead investors to ignore expenses in sector funds, yet they're just as important here as in an index fund. Many of the best sector funds charge reasonable expenses. So, rather than settle for some poor-quality fund with a 2.00% expense ratio, shop around.
6. Keep tabs on your reasons for buying a fund.If the reasons you bought the fund (a great manager or a long-term trend) are no longer valid, you should get out. For example, a few years ago many people thought real estate--especially foreign real-estate--was going to enjoy a long and glorious boom. It turns out that was a bubble. So, at some point, investors had to accept that their thesis was wrong. If your reasoning was wrong or the great manager you liked has left, you should consider moving on.
7. Don't make them your core.Sector funds can fill a gap or serve as a speculative play, but you should have diversified funds at the core of your portfolio. If you have a portfolio of sector funds you're likely to have left some key gaps and you'll probably be paying more in expenses than you should.http://www.viewmyviews.com
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