The term sector fund refers to a portfolio of securities issued by companies that operate in a specific industry or segment of the economy. The objective of these funds is to provide the investor with the opportunity to diversify within the sector.
Sector funds attempt to provide investors with the opportunity to enjoy diversification within a segment of the economy or industry. However, because there is a lack of diversification across sectors, these types of funds contain above average market risk. In addition to mutual funds, investors can find sector funds offered as closed-end and exchange traded funds.
The most common categories of these funds include:
- Communications: primary focus is on the telecommunications industry.
- Consumer Discretionary: includes businesses that sell what are considered non-essential goods and services.
- Consumer Stables: includes businesses that sell what are considered essential goods and services.
- Financials: includes firms that provide financial services to both commercial customers as well as retail consumers.
- Health Care: includes companies providing medical and healthcare goods and services.
- Industrials: includes businesses that produce goods used in manufacturing and construction.
- Natural Resources: includes companies in the oil, natural gas, and forestry industries.
- Precious Metals: includes companies that produce copper, gold, platinum, and silver.
- Real Estate: companies that buy and sell properties, buildings, and land.
- Technology: includes businesses providing computer, software, and electronics solutions.
- Utilities: includes companies that provide electric, natural gas, and water.