You ditch the underperformers and get only the good stocks, the ones that are rising fast now. Then, when energy falls, you move your money out of that fund and into the next big thing. Picking sectors can be lucrative, but it can be risky, too.
Sector investing concentrates investment dollars in one group of related companies.
Industry-based sector funds can generate lucrative returns when the timing's right. If it isn't, the volatility of such specialized investing can be painful. It's a natural evolution in investor habits, he said. When investors notice that some companies in a fund do better than others, they want to weight their investing more toward those companies. A sector fund is simply an attempt to take the best parts of a diversified fund and make them the focus, he said.