Mutual Funds and Hedge Funds

Sector funds are stock funds that invest in a single sector of the market, such as the energy sector or the biotechnology sector. Sector funds are usually used by investors to achieve growth -- in other words, you would choose sector funds that match the industries that you think are going to do well in the future. But sector funds can also be used for other purposes too -- for example, to act as a hedge against other holdings in a portfolio. Some common sector funds include financial services funds, gold and precious metals funds, health care funds, and real estate funds, but mutual funds exist for just about every sector. To be considered a sector fund, a fund must invest at least 25% of its portfolio in one sector, although many sector funds invest all of their holdings in a single industry. In general, sector funds are more volatile and risky than mutual funds that invest their assets across a wide variety of industries.