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They are a collective investment scheme that focuses their investment efforts on a specific piece of the market.
Plus, you could find even more specific sector funds within each of those categories.
you might invest in a sector fund through a brokerage firm.
The fund manager will choose a particular sector or industry and select companies to invest in.
Some sector funds offer dividends.
Types of Sector Funds
There are different types of sector funds.
These sector funds have the opportunity for growth, but investors have to be comfortable with volatility and uncertainty.
Health Care Sector Funds
Health care sector funds are likely companies that are familiar to you.
This sector fund focuses on pharmaceuticals,biotechnologyfirms, medical machine manufacturers and health care providers.
These funds are considered more stable, especially during economic downturns.
Energy Sector Funds
Oil, natural gas and renewable energy are part of energy sector funds.
These specific funds are sensitive to global demands and commodity prices.
They tend to thrive in times of economic boom.
This is because an entire sector can experience a downturn at once.
Here is a step-by-step guide:
Step 1.
All three brokerage funds cater to beginner and advanced investors.
Step 2.
Research Sector Performance
Do your research.
Find out current economic conditions and market trends.
Use those markers to identify sectors with strong growth potential.
Look for industries benefiting from innovation, consumer demand or favorable regulation.
Step 3.
Strategies for Investing in Sector Funds
Unfamiliar with the strategies for investing in sector funds?
There is an expectation that your sector fund will outperform other investments.
Rotational Investing
Use your sector funds to create rotational investing.
You invest in certain sector funds based on market trends and economic cycles.
How to Choose the Right Sector Fund
Wondering which sector fund is right for you?
Aligning With Your Investment Goals
What are your investment goals?
If youre striving for capital preservation, sector funds arent ideal.
However, if youre looking for growth, target sectors like clean energy, tech or biotech.
If youre looking for income, look at sector funds that pay dividends like utilities andREITs.
You will also want to know the expense ratio how much of an annual fee the fund charges.
The lower theannual fund fee, the more incentive you have to invest.
Consider the top holdings of the sector fund.
Are the companies strong and reputable leaders in the sector?
This is a good time to invest in thefinancial and industrial sectors.
When the economy is in the mid-expansion phase, businesses are investing in innovation and productivity increases.
In this economic cycle, it is likely ideal to invest in technology, communication services and technology sectors.
Inlate expansion cyclesof the economy, growth slows, inflation rises and interest rates may increase.
During this time, it makes the most sense to invest in the energy, materials and utilities sectors.
You want to invest in sectors that will thrive despite the economy.
These sectors generally are health care,consumer staples and utilities.
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