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POSTED BY ON September 26, 2010 7:02 pm COMMENTS (5)
Some of the sector funds are really doing very well like Reliance Banking, Reliance Pharma or Franklin Pharma. Recently Benchmark Mutual fund has come up with a slew of Sector ETFs.
For a moderately aggressive investor who wants to invest some portion of his funds in sector funds, which sector funds are good to invest? What about the sector ETFs?
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Thanks everyone. Your responses to my query has been very helpful and informative…
@Meena,
I am totally against investing in sector funds. Following is the changing sector trend in each bull market: (source: The hindu business line :http://www.blonnet.com/iw/2010/08/29/stories/2010082950150500.htm)
2000 Tech boom:
Bull run : Nov 98 – Feb 2000: Top gainers – Media, Telecom, Software, Realty, consumer durables.
Bear run: Feb 2000-sept 2001: Top losers – Media, software, Telecom, Realty, consumer durables.
2008 infrastructure boom:
Bull run: Jun 2006-Jan 2008: Top gainers – Power, Bank, Realty, Media, Infrastructure.
Bear run: Jan 2008-Mar 2009: Top losers – Media, Infrastructure, steal, textiles, Bank
Recent bull run:
Mar 2009 – Jul 2010: Top gainers – Consumer durables, Fertilizers, Infrastructure, steel, metals.
In all the 3 bull run i dont see any common sector which gained consistently in all bull run. And invariably the sector which gains most in the bull run is the one which ends as Top losers in the following bear market. Now do you think you can time the sector perfectly each time before start of the bull run and ride the market? I dont feel so.
Secondly lets compare the returns of the sector fund u mentioned with top diversified large cap mutual fund. (source: valueresearchonline.com)
5-year return of Reliance banking, Reliance pharma, Franklin pharma – 28%, 28%, 22% respectively.
5-year return of HDFC Top 200, Reliance regular savings, HDFC equity – 27%, 27.32%, 27.5% respectively
5-year returns shows that top diversified equity mutual funds gave similar kind of returns to that of hot sectors of now.
Based on this you can take your own decision whether to invest in sector funds or not.
Don’t go for sectoral funds as they’re more risky. E.g. if you have invested in banking sector & there is some bad news on interest matter, all the banking stocks will move downward; thus giving you total loss.
On the other hand, if you invest in equity diversified mutual fund, a particular sector may have 3%-4% allocation & the fund manager might shift this allocation based on bad news or increase it on good news.
Overall, diversified funds are better than any sectoral funds.
You can go for Gold ETF to a max. of 10% of your investments.
Hope it will help you.
MoneySavingsHelp
As i Posted Earlier in Some Other Question Investing In Sectoral Funds is Very very Risky an depends on your nature. if u are Aggressive investor and know market strategies then only invest in Sectoral Funds.
Also If u Invest In Sectoral Funds please Review it periodically becos always always one sector doesnt perform well
Sector ETFs are very good to invest and get good returns
but one should keep Eye on Such Investment and Market scenerio specially international one becos all things are run by international trends.
Now a days Gold and Silver ETFs are very popular but one should know that they don’t invest in Gold but in Gold mining Co.