If you are an investor with some experience in investing in mutual funds must know what specialty funds are. In case you don’t know, the following article might help.
There are different types of mutual funds, and specialty sector funds are among them. The key specification distinguishing such a fund is that it is less focused on diversification. Hence, the risk and reward both hang in the cradle of volatility.
Investors seeking to invest in one particular industry can choose it as their investment vehicle. This article will help you understand specialty funds and how to invest in them.
What Are Specialty Funds?
Specialty mutual funds or specialty sector funds focus more on a particular industry and less on diversification. This type of investor can invest in different sectors of an economy. It is a specialized way of targeting a specific industry and investing in it. A specialty fund investment is focused on a specific region, commodity, or segment of a market.
Such investment would often target different industries such as real estate, technology, energy, marijuana, or healthcare. In specialty sector investors, the investors have the massive potential of earning a great reward. But, likewise, the risk is also high. Since the chance of diversification is minimal, investors must be very careful about their investments.
Some investors seek exposure in a specific sector in the market. It is a good way to invest if you want to build your exposure in a certain part of a market instead of buying any individual stock.
What Are Examples Of Specialty Funds?
Specialty mutual funds or sector funds have various sectors you might find worth investing in. as an investor seeking to gain authority in a specific part of the market, this type of investment is excellent. Here are some specialty funds examples that might be worth knowing –
Real Estate Specialty Funds
Investors who have a small investable corpus can invest in real estate funds.
If are you looking for specialty funds with almost assured and steady dividends, then you should consider investing in utility funds. This sector is one of the most well-performing in the utility market.
Natural Resource Funds
Another specialty fund sector is the natural resource funds. This fund includes gas, energy, forestry, and industry related to timber.
Technology funds can be a profitable sector for investors looking to gain exposure in the technology sector.
Banking, accounts, insurance, and firms come under financial specialty funds. If you are willing to build exposure in this industry, this industry is good for you.
Companies related to telecommunication or internet companies come under communication funds. This type of mutual sector fund is also great for investment if you are seeking a high return in a specific sector.
Precious Metal Funds
Investors often find the market for precious metals like gold, diamonds, and others very intriguing. Many of them want to build their authority in such an industry.
This industry covers companies and for-profit organizations like pharmaceuticals, medical institutions, and lab chains.
Benefits Of Investing In Sector Funds
As an investor, if your goal is to invest in a sector to build more authority over it, you can choose specialty funds. But unfortunately, the benefits are limited. Here are some benefits of investing in a specialty mutual fund.
- Investors get to explore the positive and negative sides of a specific industry.
- The amount of reward can be potentially high ( based on the growth of a particular market).
- An investor can gain authority in a specific industry market.
Risks Of Investing In Specialty Funds
Compared to the benefits, the risk of investing in specialty funds is higher. Here are some risks involved with such investment. –
Industry Concentrated Risk
The industry you are investing in might has potential risks. An industry-specific investment is not immune to the problems of that particular industry.
Stock Market Risk
Aside from the industry-specific risks, a specialty mutual fund is prone to decay due to stock market disasters. A stock can decline, risking an entire industry with it. Especially foreign stocks are more volatile and less liquid.
Risk Of Asset Concentration
Targeting certain assets suggest that a fund’s performance can be damaged because of a high percentage of assets in ten of its largest holdings. As a result, the performance of the fund can be hurt disproportionately.
Risk Of Non Diversification
Diversification is the best way to avoid the volatility of the stock market. But specialty funds being a non-diversified investment, can put your fund in danger.
Frequently Asked Questions (FAQs) :
I hope you got all the information you needed about specialty funds. If you need any further info related to the same, you can read the following questions and answers –
Special situations are one-time incidents with an impact on a specific stock. Such events can cause funds to pop or go downward at any given moment. There are many funds that wait for these special situations and try to leverage them.
There are four types of funds that you can invest in. here are some of them –
⦿ Bond funds.
⦿ Money market funds.
⦿ Stock funds.
⦿ And target date funds.
Each of these funds has its share of risks and rewards.
Some examples of the specialty stock would be as follows –
⦿ Real estate.
⦿ Precious metal.
⦿ Natural resources.
How To Invest In Specialty Funds?
If you want to invest in specialty funds, the first piece of advice would be to limit your exposure. You need to limit your sector exposure by 5% to 10% of the value of your portfolio. Also, since it is an industry-oriented investment, you should gather as much information as possible about the given market. The best idea would be always stay updated with the latest market trends in that sector.
I think that this article was helpful in giving you a complete idea about specialty funds. Do you have any further queries about the same, you can ask questions in the comment box.