Sector Funds INTRO: Millions of Americans own mutual funds and there is almost an endless choice of mutual fund types. In fact, there are now more mutual funds than there are stocks listed on the New York Stock Exchange. Bruce Hagan, certified financial planner with RAI Investments is with us to describe a category of mutual funds known as "sector funds." Q1: First of all, Bruce what are the basic features of mutual funds that make them so popular among investors? A1: Mutual funds provide professional management, convenience and low costs all in one package. Probably the single most attractive feature, though, is diversification. I was looking into a global fund yesterday which had its assets invested in 38 countries and spread across 30 different industry groups. We can buy income funds, growth funds, balanced funds and others that offer a very broad-brush approach to investing. Q2: Does the term sector funds indicate the fund invests just in one industry group? A2: Generally, yes. In fact, they’re also referred to as industry-specific funds or specialty funds. There is diversification to the extent that many stocks will be included in the fund, but at least 80% will all fall within the described industry or sector. Q3: Is this a better approach than the more general funds? A3: As you might expect there’s a wide variance of opinion on that. Some financial planners consider sector funds to be poison and steer their clients far away from them. They point out that these funds may have more turnover of stocks within the portfolio, that they tend to be excessively volatile and that often they’re run by the least experienced managers employed by the fund family. Others advise their clients that they can play an important role within the clients overall investment strategy. They can spice up a portfolio by giving you the potential for higher returns. Q4: How would one determine if a sector fund is appropriate for them? A4: I don’t think you should look at these funds and compare them to other kinds of funds. You really should compare them to stocks. If you would like to hold some stocks in a certain industry, a sector fund may be a more efficient way of accomplishing that than buying five or six stocks in that industry group. Also, if you have expertise in an area and feel positively about the growth prospects of that area or field you may want to find a sector fund covering that area. Q5: So for someone just starting out they may not be appropriate? A5: Probably not. They’re best suited for more aggressive, long-term investors who would otherwise buy stocks. They are inherently more risky than more diversified funds and be aware that time and time again they are among the best as well as the worst fund performers. Money tends to really flow into them when they’re hot, currently the technology funds and really flow out of them when they’re cold, like the health care funds today. You don’t want to get caught in the wrong sector fund at the wrong time. The discussion offered above and in the movie should not be considered an endorsement by Florida State University. They are offered in the educational sense of providing thought-provoking information for our Web audience. Copyright shared with Florida News Channel (FNC), all rights reserved. Broadcast 1/21/2000