Technology, finance, consumer cyclical, staples, utilities, and healthcare! Within each category, the funds and exchange-traded funds (ETFs) that are included in this list represent some of the most successful investments. The majority of the funds on the list are exchange-traded funds and index funds. Most of the time, these types of funds offer the best exposure to the different market segments in terms of breadth, variety, and cost ratios. On the list are consumer-driven and defensive industries from a wide range of sectors.
Key Takeaways
Sector funds are index funds and exchange-traded funds (ETFs) that focus most of their investments on a certain industry. One of the ways to get diversified exposure to a market with a single investment is to put money into a sector fund. Investing in various sector funds is a great way to diversify your portfolio. However, you should never use this strategy to attempt to time the market.Funding for the Technology Sector
The technology sector refers to a group of stocks that are comprised of companies that are focused on technology. These might be companies that manufacture computer hardware, software, or electronics. They can also be companies that are in the service industry and provide services such as data processing or technology. Apple, Microsoft, and Google are all participants in this industry. There is a connection between investing in technology and investing in growth stocks or the growth investment objective. It might be challenging to choose the finest funds and ETFs to invest in this market. Because it mirrors the performance of the NASDAQ 100 Index, the Invesco QQQ Exchange Traded Investment (ETF) might be considered a pure technology fund. Although technology interests account for only 48.21 percent of its total, it could be considered a pure growth alternative. Even though many of these sector funds focus on just one subsector, like computers, it is usually best to use a technology sector fund with a wide range of ways to invest.Financial Sector Funds
Banks, credit card companies, insurers, and brokerage firms are all part of the financial services sector. Some examples of companies in this sector include Bank of America, Wells Fargo, Goldman Sachs, and MetLife. When interest rates are low, certain financial stocks tend to perform very well. When economic conditions are unstable, demand for financial services like mortgages, loans, and investments is at its peak. There are more than one hundred exchange-traded funds and mutual funds that focus on the financial sector. The Vanguard Financials Index is considered to be one of the best (VFAIX). iShares' US Financials ETF is widely regarded as a top-tier exchange-traded fund (ETF) (IYF).Funds Representing the Consumer Cyclicals Sector
Consumer cyclical products or services that aren't essential to human survival are known as consumer cyclical products or services. You could also hear people refer to these things and services as "leisure" or "discretionary." The purchase of these products is reliant on the ebb and flow of the economy. Retail sales of leisure goods or services can be further broken down into two categories: those that are durable and those that are not durable. Durables like cars and tools are known as durables. Entertainment and hotels are non-durables. It is more common for stock prices in this industry to be higher when the economy is expanding as opposed to when it is contracting. It's possible that during those times, people will only be interested in purchasing the most basic necessities. When circumstances are good, consumers tend to spend more money on products and services that are not essential to their lives. When circumstances are bad, they allocate a smaller portion of their budget to them. This sector fund, like most others, has a wide range of subsectors to invest in. You have the option of purchasing shares of a cyclical stock sector fund that focuses just on the auto industry. However, it would be more prudent to select the diversification of index funds and ETFs in order to gain exposure to a wider range of market segments. The Admiral Shares of the Vanguard Consumer Discretionary Index Fund is widely considered to be among the top consumer cyclical sector index funds (VCDAX). One of the most successful exchange-traded funds is the SPDR S & P Retail ETF (XRT).Funds Representing the Consumer Essentials Sector
Consumer staples are things that are regarded as vital for day-to-day existence. Some examples of consumer staples include food, nicotine, and beverages. It is common practice to refer to the shares of firms that manufacture such goods as "defensive" or "non-cyclical" equity. Coca-Cola, General Mills (a food company), and Philip Morris (a cigarette company) are all part of this industry (beverages). Even when the economy is bad, people are not willing to stop buying and consuming necessities like food and water. When compared to the prices of growth stocks, the prices of staples stocks have a tendency to be more stable in a bear market. Even when times are tough, basic necessities like cereal and milk are still required. They may even cause an increase in the use of "sinful" products such as alcoholic beverages and tobacco products. When people believe that a recession is on the horizon, many of them will begin purchasing defensive stocks. A diverse index fund or exchange-traded fund (ETF) that has minimal expenses and offers a decent approach to obtaining broad exposure to the staples sector is a smart option. Admiral Shares of the Vanguard Consumer Staples Index Fund is widely considered to be among the top consumer staples index funds (VCSAX). One of the best exchange-traded funds, or ETFs, is the Consumer Staples Select Sector SPDR (XLP).Funds Relating to the Utilities Sector
According to Morningstar, the goal of the portfolios held by utility funds is to achieve capital appreciation by investing primarily in equity securities issued by public utilities located either in the United States or in countries outside of the United States. These utilities can include electric, gas, and telephone service providers. These businesses include public utilities located not only in the United States but also in other nations. These are specialized investment vehicles that focus on the utility industry and make stock purchases there. It is also believed that these stocks have defensive characteristics. When compared to the prices of other equities, their values have a tendency to be relatively unaffected by falling markets. Even during a recession, people continue to require basic services such as phones, gas, and electricity. When investors think a recession is coming, they may buy defensive companies. If you want concentrated exposure to phone firms like Verizon and Comcast, for example, you might want to consider investing in a mutual fund like Fidelity Telecom and Utilities (FIUIX), although sector funds are already quite focused on a specific industry. There is a danger that subsectors can be overly specialized for their own good. It's smart to use an index fund or exchange-traded fund (ETF) like the Utilities Select Sector SPDR (XLU) because it gives you a lot of investment options and doesn't cost much. In addition to this, utility stocks are well-known for their consistent dividend payments. If you want to make more money by investing in dividend mutual funds, you might want to think about adding one of these funds to your portfolio.Funding for the Healthcare Sector
The terms "healthcare" and "health" are also sometimes used interchangeably with "health" and "specialist health." There is a section of the stock market devoted to investing in companies in this business, and it covers a lot of ground. Even someone who has no prior experience in the field of investing can conceive of some sections of the healthcare industry, such as hospital conglomerates and drug manufacturers. Pfizer, United Healthcare, Cigna, Abbott Laboratories, and HCA Holdings are all companies that operate in this area. Investing in a health sector mutual fund like the Vanguard Health Care Fund Investor Shares is a smart choice for those who want to acquire exposure to a wide range of aspects of the healthcare industry (VGHCX). A larger portfolio of mutual funds can be diversified more effectively with the assistance of health sector funds. It is common practice to consider them to be defensive investments. They have a limited degree of similarity to general stock index funds. Broad stock index funds, which are used by many investors, are often the most important parts of a portfolio. Even in times when many other sectors of the economy are struggling, the healthcare industry can continue to thrive. No matter how the economy is doing, people have to keep going to their doctors and buying the prescriptions they need. The implementation of new legislation may have positive or negative effects on particular subfields of the healthcare industry. A negative impact can be had on a drug company if the patents for commonly used pharmaceuticals are about to expire. It's possible that the FDA's approval of a breakthrough medicine will have a favorable impact. Because of the Patient Protection and Affordable Care Act, the value of some stocks, such as those of hospital firms, has increased. Others, like insurers, have seen their profits go down, but the effect on the healthcare industry as a whole has been pretty small.Funds that Invest in the Precious Metals Sector
The vast majority of precious metals mutual funds invest their money in the equities of mining companies. However, several mutual funds do possess tiny amounts of gold, silver, copper, or platinum, typically in the form of bullion coins. Most of the time, the headquarters of companies that deal in precious metals are in North America, Australia, or South Africa. The purchase of bullion coins is the strategy chosen by some investors. Others would rather put their money into shares of mining companies, mutual funds, exchange-traded funds, or exchange-traded notes. The precious metals portfolios of commodities are comprised of investments in a variety of metals, including gold, silver, copper, platinum, and palladium. Both direct investments in physical assets and indirect investments in commodity-linked derivatives are viable options for investors. Many people find that commodity-precious metals exchange-traded funds provide them with the most exposure to precious metals. Exchange-traded notes, commonly known as ETNs, are another option. These are debt securities, similar to bonds, but they do not invest in any particular asset. They are not stocks or index funds, despite the fact that they are connected to a market benchmark. They combine the characteristics of bonds and exchange-traded funds into a single investment vehicle (ETFs). The most frequent way to purchase gold is either in the form of gold bullion coins or through the use of a bullion exchange-traded fund (ETF), such as SPDR Gold Shares (GLD). Gold bullion accounts for a negligible portion of mutual funds' total investment capital. Gold mutual funds, which are often called "precious metals" funds, often hold shares in mining companies. In terms of their performance over the course of a longer period of time, the Sprott Gold Equity Fund (SGDLX) and the Gabelli Gold Fund, Inc. Class A (GLDAX) are two of the most successful gold mutual funds. In addition to this, they provide lengthy manager tenures and expense ratios that range from average to low. If you want the most direct exposure to silver, you should invest in a silver exchange-traded fund (ETF) like the iShares Silver Trust (SLV). There is also the option of using an ETN, such as the iPath Silver ETN (SBUG). Keep in mind that ETNs are debt products, like bonds. They do not make any investments in property. ETNs may be connected to a market benchmark, but contrary to popular belief, they are neither stocks nor index funds. They combine aspects of bonds and exchange-traded funds (ETFs). If you want the most direct exposure to copper, you should consider using an exchange-traded note (ETN), such as the iPath Series B Bloomberg Copper Subindex Total Return ETN (JJC). If you are looking for the most direct exposure to platinum, you should consider investing in an exchange-traded note (ETN) product like the iPath Bloomberg Platinum Subindex Total Return ETN (PGMFF). These are specialized funds that do not invest in a diverse range of industries. They should only be utilized in limited doses. You could try to limit your exposure to no more than 5% of your total portfolio, but no more than 10%. Platinum is not often held as a tangible asset by the majority of mutual funds. Holding equity precious metals funds such as the Vanguard Global Capital Cycles Fund (VGPMX) and the USAA Precious Metals & Minerals Fund (USAGX) is one way to get indirect exposure to platinum. However, these funds typically have more exposure to gold and gold mining companies than they do to platinum and platinum mining companies.Mutual Funds that Invest in the Commodities Sector
A thing that satisfies a fundamental requirement in the consumer market is known as a commodity. Think of the sugar. It is a tradable item that satisfies a need in the consumer market, yet there is no discernible distinction between the various brands: Sugar is sugar. When shopping for a product, a customer will frequently look for the option with the lowest price, which is typically a generic brand. Other types of commodities include crude oil, coal, corn, tea, rice, gold, silver, and platinum. Other types of commodities include these. A service commodity that many people purchase is term life insurance. People frequently look for the lowest price that can be found in the market. Term life insurance is offered by a number of different companies. There is not a significant difference between any of the policies. The option that offers the best value is frequently considered to be the "best choice." Putting all of your eggs in one basket, especially in terms of quantity, is a hazardous strategy. Imagine making a financial investment in gold when its demand is at an all-time high. When you read any type of mass media, you are guaranteed to come across advertisements encouraging you to purchase and invest in gold. What would you do if you bought into the gold craze when it was at its peak, only to see its value plummet by 30 percent in eight months? What if the value fell by more than a third during a period when even the worst performing S& P 500 index fund would have returned more than 20%?That is a missed opportunity that will cost you 50% of the total.Funds from the Natural Resources Sector
The term "natural resources" refers to businesses that are based on the production of commodities such as chemicals, minerals, and forest products. Mutual funds and exchange-traded funds (ETFs), whose portfolios are often called "sector funds," may invest in assets in these areas to give investors a wide range of exposure to natural resources. Other investment portfolios might focus mostly or only on a small group of the industries in the natural resources sector. It would be in your best interest to investigate funds that have broad exposure by investing in a diverse index. Investing in the natural resources of the United States with the iShares North American Natural Resources ETF is a solid approach to accomplish this goal (IGE). The iShares Global Materials ETF (MXI) is a great way to invest in the international market. Both Vanguard and Fidelity have excellent index mutual funds available to their customers. Two of these products are the Vanguard Materials Index Fund Admiral Shares (VMIAX) and the Fidelity Select Materials Fund (FSDPX).Funding for the Energy Sector
The term "energy sector" refers to the collection of all the many industries that are responsible for the generation and distribution of energy. Companies dealing in coal, oil, and electricity, as well as wind and solar power, are included in this group. This industry is represented by companies such as Exxon Mobil, Haliburton, and Southwestern Energy Company. You can obtain broad exposure to the numerous industries that fall under that sector by investing in an index fund or an ETF. There is a wide selection of funds from which to pick. Vanguard Energy Index Fund Admiral Shares is one of the most successful investments (VENAX). Most people agree that the Energy Select Sector SPDR Fund is one of the best exchange-traded funds (XLE) in this sector.Funding for the Transportation Sector
Companies that are engaged in the transportation of either goods or people make up this sector of the economy. It comprises forms of transportation such as air carriers, railroads, and trucking businesses. These investments are susceptible to changes in both the state of the energy industry and the price of gasoline. This industry also has the potential to serve as a leading economic indicator. It gives clues about how many products these businesses are selling and how much demand there is for them. There are not many mutual funds or ETFs that offer a wide range of exposure to this area. The Fidelity Select Transportation Portfolio is widely considered to be among the top mutual funds in this industry (FSRFX). The iShares Transportation Average is widely regarded as one of the industry's top exchange-traded funds (ETFs) (IYT).Funds that Engage in Socially Responsible Investing (SRI)
Socially responsible investment, or SRI, is a type of investing that is becoming more and more popular. SRI funds are not part of any one industry sector; instead, they are their own type of investing that is becoming more and more popular. The Social Responsibility Initiative (SRI) is an alternative method that aims to promote responsible conduct. These may include actions that are beneficial to the environment, human rights, religious perspectives, or moral pursuits that steer clear of things like alcohol, tobacco, gambling, guns, or pornography. ESG funds, which stand for environmental, social, and governance investing, are also becoming increasingly popular. They have some connection to SRI. These funds seek to expand their holdings by investing in companies that meet certain environmental standards, which evaluate how well a business cares for the natural world. Companies that meet social requirements are aware of how they manage their relationships with their employees, suppliers, customers, and the communities around them. Concerns pertaining to a company's leadership, executive remuneration, audits, internal controls, and shareholder rights are examples of topics relevant to corporate governance. Mutual funds are among the most effective vehicles for engaging in socially responsible investment (SRI). The acronym SRI is sometimes shortened to "socially conscious funds." They typically steer clear of businesses that make things associated with "sin," such as alcoholic beverages and tobacco. The Parnassus Endeavor Fund Investor Shares (PARWX) and the Calvert Conservative Allocation Fund are two examples of these types of investments (CCLAX).Making an Intelligent Investment in Industry Funds
Limit the amount of your overall exposure that is invested in any one sector to a modest part of your overall allocation. Instead of trying to time the market, but those funds toward diversity. Adhering to the 5 percent allocation rule can be accomplished by investing wisely in sector funds or exchange-traded funds (ETFs). This rule states that investors should not devote more than 5% of their portfolio to a single stock or highly concentrated sector.Questions That Are Typically Asked (FAQs)
What exactly are these "sector funds"?
The passive portfolio diversity of an ETF is combined with the more narrowly focused investment techniques of a sector fund. The funds each hold tens or even hundreds of individual stocks that are all involved in the same business sector. For example, instead of buying shares in a single bank like JP Morgan, you could invest in an exchange-traded fund (ETF) that invests in the financial sector and includes companies like JP Morgan, Bank of America, and hundreds of other financial institutions.What are some goals that should be pursued while investing with a sector fund?
You are able to make adjustments to the exposure of your portfolio using sector funds. For example, the majority of your investments could be in broad market index funds like the S& P 500. You can purchase (or short) the exchange-traded funds (ETFs) that track a certain sector of the S & P 500 if you have the conviction that this sector will outperform (or underperform) the average performance of the market.