Sector Funds — Vote Your Conscience
By: G M Potter
Tags: Investing, Mutual Funds, Stock Market, Investment, Finance

Sector Funds — Vote Your Conscience

Yes, there are ethical choices on Wall Street.

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No matter which way your politics lean, how deeply and clearly you have defined your ethics, or how much money you have to invest (with certain minimums), you can vote your conscience when choosing an investment.

Currently, there are more than 6,000 different stocks traded publicly on the New York Stock Exchange and NASDAQ exchange that are available to anyone for investment.

There are so many; in fact, most people opt for investment in a mutual fund as an alternative to putting most of their eggs in one basket. There, they have the benefit of a professional portfolio manager who spreads the investment dollars over a wide selection of stocks.

There are so many different companies to choose from that the mutual fund industry has developed a vast assortment of different types of mutual funds — each focusing on a specific area of the stock market.

There are, for example, funds that focus on small companies, or small capitalized companies, called (ironically) Small Caps. There are Large caps, as well, and even — to slice and dice even further — Mid Cap funds and Micro-Cap funds.

Then, there are the mutual funds that deal exclusively with a particular industry or “sector” of the market.

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Here’s where you can choose the destination of your investment dollars in a very refined way. When I was a financial advisor, sector funds were all the rage. Clients with a particular expertise could invest in a specific industry that they understood. Since my practice was in Silicon Valley, the vast majority of my clients came from the High-Tech sector of the economy and felt quite at home investing in that sector.

I also had socially conscious clients — it was California, after all — and renewable energy companies were on the rise. Companies that make wind turbines, for example. were very popular. Companies that made solar panels were also of interest. There were waste management companies that did surprisingly good work dealing with all the waste and trash we produce.

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Sector funds became, and still are, ways for investors to vote their conscience.

Even if voting your conscience with your investment dollars is not of tremendous importance, sector funds have an important role. They can capitalize on current events, for example.

There are sector funds that focus solely on pharmaceuticals, vaccines, and hospital equipment to use a relatively current issue.

Healthcare. Energy. Financial. If there is an identifiable industry, there is a sector fund that covers it.

Sector funds are by no means required for every portfolio. They are used primarily to add some zest to a portfolio’s performance. They are appropriate for all levels of investment experience, however. If you are just getting started in the investment world, or you have been investing for some time, here are some resources to use to begin your due diligence.

Kiplinger’s Magazine

TheBalance.com

Sector funds are mutual funds. Anywhere a mutual fund can go, a sector fund can follow.

You can use sector funds in an IRA, a Roth IRA, or a traditional and taxable brokerage account. There are even some 401(K) plans that have sector funds available.

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Do some research. Like many of my clients, you may have some expertise in a specific industry. You may have some particular insight into that industry that the rest of us simply don’t possess. You may, therefore, be able to determine more accurately if a particular sector fund is choosing the right companies.

There is some due diligence to be done, however. Sector funds will have their own standards of performance. Compare your choices to the Standard and Poor’s 500 Index for a relative comparison. Some sector funds eclipse the S&P 500. Others lag behind.

This could be the added element of defense or offense that you have been looking for.