Sector investing can mean big bucks to an investor, but choosing the right sector at the right time isn't easy.
Sector funds invest in companies within specific industries such as electronics or biotechnology. But even though their portfolios may hold dozens of stocks, they won't represent other industries.
Such an investment can be both rewarding and devastating. In 1998 and 1999, for example, science and technology and telecommunications funds were whipping the pants off other funds. According to mutual fund tracker Lipper & Co., the average science and technology fund was up nearly 135 percent in 1999, five times the performance of the average U.S. equity fund that year.
new funds were created by venture firms in 2001 with commitments totaling $55 billion (compared with 250 funds and $70 billion commited in 2000)
SOURCE: National Venture Capital Association
By 2001, however, both types of sector funds tanked. Science and technology were down more than 37 percent, and telecommunication funds were off over 39 percent.
If you're going to be a player, be one with your eyes wide open. For the average investor, that means asset allocations in sector funds somewhere between 5 to 15 percent.
It's anybody's guess what sectors will be hot. But to learn more about sector investing,check out Rydex Funds' brochure "Exploring Sectors." To get a free copy, call (800) 820-0888.
Dian Vujovich is an author, syndicated columnist and publisher of mutual fund investing site www.allaboutfunds.com.