Often, the best way to protect your family's investment portfolio is to know what you don't know. For those of you who prefer to invest in individual stocks, this means avoiding companies that you are unable to understand, or that utilize accounting methods on the income statement and balance sheet with which you are not, yet, familiar. That way, you can behave like a true long-term investor, collecting dividends and accruing capital gains over decades, if not generations.
Still, for the sake of diversification, it can make sense to have exposure to certain types of businesses that aren't correlated with your other investments in terms of risks. How do you solve the quandary of buying assets if you can't tell which individual companies are the safest or best managed? In many situations, the answer is simple: A low-cost sector fund.
The Basics of Sector Funds
A sector fund is a special type of mutual fund. Instead of tracking a broad stock market index such as the Dow Jones Industrial Average or S&P 500, it focuses on a single sector of the economy. In terms the day-to-day operation, sector funds can be structured as either traditional mutual funds or exchange traded funds (ETFs), both of which have their own advantages and drawbacks.
Real World Examples of Sector Funds
One of the most popular ways to buy a sector fund is through a SPDR. These ETFs divide the S&P 500 into nine distinct funds, each tracking a specific sector:
- Consumer Discretionary, ticker symbol XLY
- Consumer Staples, ticker symbol XLP
- Energy, ticker symbol XLE
- Financials, ticker symbol XLF
- Health Care, ticker symbol XLV
- Industrials, ticker symbol XLI
- Materials, ticker symbol XLB
- Technology, ticker symbol XLK
- Utilities, ticker symbol XLU
The stocks in each sector fund are passively held as an index fund. For example, the Consumer Staples sector fund holds shares in companies such as Procter & Gamble, Coca-Cola, Philip Morris International, Wal-Mart Stores, PepsiCo, Colgate-Palmolive, Mondelez International, General Mills, Kraft Foods, Estee Lauder, Kellogg, Hershey, Clorox, J.M. Smucker, McCormick, and Campbell Soup. When an investor buys shares of the sector fund, he or she is really buying into this diversified basket of stocks.
Investor favorite Vanguard also has a few sector funds. For example, The Vanguard Health Care Fund, which trades under both ticker symbols VGHCX for the investor class shares with a 0.35% expense ratio and $3,000 minimum investment and VGHAX for the admiral class shares with a 0.30% expense ratio and a $50,000 minimum investment, focuses on a basket of stocks in the health care industry. At the moment, the underlying portfolio holds 89 stocks split among pharmaceuticals, heath care equipment, biotechnology, managed health care, and more. Positions include companies such as Merck, Bristol-Myers Squibb, Eli Lilly, AstraZeneca, and Forest Laboratories. Investors who buy it may not be able to tell you whether Pfizer or Amgen is going to be a better holding over the coming decade but it doesn't matter as they are opting to own both, all for rock-bottom operating costs.
If Sector Funds Aren't Focused Enough, Consider Industry Funds
For some investors, sector funds are still too broad. After all, something like the consumer discretionary sector contains everything from automobile manufacturers to fast food restaurants. Instead, they want specific industries within a sector.
One of the leading mutual fund companies in this area is Fidelity. While those who want to invest in the consumer discretionary sector could buy the Fidelity Select Consumer Discretionary Portfolio sector fund, which trades under ticker symbol FSCPX, they could also opt for individual industry funds that sub-divide these holdings:
- Fidelity Select Automotive Portfolio, ticker symbol FSAVX
- Fidelity Select Leisure Portfolio, ticker symbol FDLSX
- Fidelity Select Multimedia Portfolio, ticker symbol FBMPX
- Fidelity Select Retailing Portfolio, ticker symbol FSRPX
- Fidelity Select Construction & Housing Portfolio, ticker symbol FSHOX
Fidelity does the same for all of its sector funds. For example, you can either buy the Fidelity Select Health Care Portfolio sector fund or you can buy one of the sub-divided industry funds:
- Fidelity Select Biotechnology Portfolio, ticker symbol FBIOX
- Fidelity Select Medical Delivery Portfolio, ticker symbol FSHCX
- Fidelity Select Medical Equipment and Systems Portfolio, ticker symbol FSMEX
- Fidelity Select Pharmaceuticals Portfolio, ticker symbol FPHAX
Keep in mind none of the specific funds mentioned in this article are recommendations as they were chosen at random. The point is that you can gain exposure to certain areas of the stock market through low-cost, broadly diversified baskets of shares in multiple companies, even if you don't have the experience to determine the intrinsic value of a certain type of firm.
.png)
0 commentaires:
Enregistrer un commentaire