| p>Investors who exclusively use broadly | | | | performance from a portion of assets committed |
| diversified, no load mutual funds for their stock | | | | to sector funds can materially enhance the return |
| investments often lose out on opportunities to | | | | of your portfolio of no load mutual funds. Fidelity |
| increase the reward potential of their portfolios. | | | | funds such as Select Electronics and Select |
| This article looks at two methods investors may | | | | Software and Computer Services sport 10 year |
| use to enhance the performance of their portfolio | | | | average annual returns of close to 18%; this is |
| of diversifed, no load mutual funds. | | | | nearly twice the 10 year average annual return of |
| Diversify, diversify, diversify! | | | | 9.4% for the Fidelity Magellan Fund. Using tactical, |
| Rebalance your portfolio periodically. | | | | infrequent rotation of assets among sectors, the |
| These have become the mantra in the post | | | | AlphaProfit's Focus(TM) model portfolio has |
| dot-com era. Stocks, bonds, and cash typically | | | | increased at an average annual rate of 34.4% |
| form the major asset classes for constructing | | | | since 1993. |
| portfolios of no load mutual funds. Lot of | | | | So what do these return rates translate to you in |
| emphasis rightly gets placed on the percentage of | | | | dollar terms? A $100,000 investment in a |
| assets allocated to no load mutual funds of | | | | diversified, no load mutual fund that grows at |
| different asset classes. However, the division of | | | | 10% per year results in $259,374 at the end of |
| assets within a particular class does not nearly get | | | | 10 years. If the same $100,000 is divided such |
| the attention it should. | | | | that $85,000 is invested in the same diversified, |
| All too often, investors exclusively use broadly | | | | no load mutual fund growing at 10% per year and |
| diversified, no load mutual funds for their stock | | | | the remaining $15,000 is invested in sector funds |
| investments. Fidelity Magellan Fund (Nasdaq: | | | | growing at 30% per year, the assets will total |
| FMAGX) and Fidelity Contrafund Fund (Nasdaq: | | | | $427,256 at the end of 10 years. That is |
| FCNTX) are examples of popular Fidelity funds | | | | $167,882 or 65% more than the $259,374 |
| investors commonly use. By following this | | | | resulting in the former case. |
| approach, investors often miss out on | | | | Thus by allocating even a relatively small, say |
| opportunities to enhance the reward potential of | | | | 15%, of the total portfolio of no load mutual funds |
| their portfolios. | | | | to sector funds, you can dramatically increase |
| In a related article, we have looked at how | | | | your returns. |
| investors can use sector funds to construct a | | | | Key Points to Remember |
| diversified, no load mutual fund portfolio. In this | | | | 1. Investors who exclusively use broadly |
| article, we look at how investors can use sector | | | | diversified, no load mutual funds for their stock |
| funds to enhance the performance of their | | | | investments often miss out on opportunities to |
| portfolio of diversified, no load mutual funds. | | | | enhance the return of their portfolios. |
| Although Fidelity funds are presented as | | | | 2. Sector funds can serve as a valuable return |
| examples, the concepts outlined here can be | | | | enhancing booster for an investor owning a |
| implemented using sector funds managed by | | | | portfolio of diversified, no load mutual funds. |
| other institutions such as Vanguard or T. Rowe | | | | 3. Investors may choose to take a passive |
| Price. | | | | long-term approach to investing in sector funds |
| Sector funds confine their investments to a | | | | that target high growth sectors of the economy. |
| particular sector of the economy. Fidelity funds | | | | Alternatively, an investor can take a proactive |
| managed under the Select Portfolios® are | | | | approach to maximize the potential of sector |
| sector funds. For example, Fidelity Select Energy | | | | funds by periodically switching assets into sectors |
| (Nasdaq: FSENX) is a no load mutual fund that | | | | with higher expected returns. |
| focuses its investments on various segments of | | | | 4. Investors willing to look beyond broadly |
| the energy industry such as integrated oil | | | | diversified, no load mutual funds have a powerful |
| companies, oil and gas exploration and production | | | | ally in sector funds. Such investors can materially |
| companies, and oil field service companies. | | | | increase portfolio returns by committing a |
| So how does one use sector funds to increase | | | | relatively small fraction of their total assets |
| the performance potential of a portfolio of | | | | invested in diversified, no load mutual funds to |
| diversified, no load mutual funds? | | | | sector funds. |
| Focus on sectors with growth opportunities. An | | | | Notes: This report is for information purposes |
| investor having a portfolio of diversified, no load | | | | only. Nothing herein should be construed as an |
| mutual funds may commit a portion of her assets | | | | offer to buy or sell securities or to give individual |
| to sector funds that focus on areas having | | | | investment advice. This report does not have |
| significant growth opportunities, e.g., electronics or | | | | regard to the specific investment objectives, |
| software. Some financial professionals call this the | | | | financial situation, and particular needs of any |
| 'core and satellite' portfolio approach where the | | | | specific person who may receive this report. The |
| diversified, no load mutual fund is the core and | | | | information contained in this report is obtained |
| the sector fund is the satellite holding. | | | | from various sources believed to be accurate and |
| Investments in Fidelity funds like Fidelity Select | | | | is provided without warranties of any kind. |
| Electronics (Nasdaq: FSELX) or Fidelity Select | | | | AlphaProfit Investments, LLC does not represent |
| Software and Computer Services (Nasdaq: | | | | that this information, including any third party |
| FSCSX) can enable the investor add emphasis on | | | | information, is accurate or complete and it should |
| growth sectors such as electronics and software, | | | | not be relied upon as such. AlphaProfit |
| respectively. | | | | Investments, LLC is not responsible for any |
| Take a proactive approach to sector investing | | | | errors or omissions herein. Opinions expressed |
| through sector rotation. Like in the previous case, | | | | herein reflect the opinion of AlphaProfit |
| an investor having a portfolio of diversified, no | | | | Investments, LLC and are subject to change |
| load mutual funds commits a portion of her | | | | without notice. AlphaProfit Investments, LLC |
| assets to sector funds. With this approach, the | | | | disclaims any liability for any direct or incidental |
| investor however seeks to maximize the potential | | | | loss incurred by applying any of the information in |
| of the portion of assets committed to sector | | | | this report. The third-party trademarks or service |
| funds by periodically switching assets into sectors | | | | marks appearing within this report are the |
| with higher expected returns. | | | | property of their respective owners. All other |
| For example, until not too long ago, major | | | | trademarks appearing herein are the property of |
| corporations pruned technology related capital | | | | AlphaProfit Investments, LLC. Owners and |
| spending whereas falling interest rates kept | | | | employees of AlphaProfit Investments, LLC for |
| consumer spending strong. To profit from such | | | | their own accounts invest in the Fidelity Funds |
| secular trends, an investor may choose to invest | | | | mentioned in this report. They may for their own |
| in Fidelity funds such as Select Consumer | | | | accounts also buy, sell, or hold long or short |
| Industries (Nasdaq: FSCPX) and Select Leisure | | | | positions in any of the other securities mentioned |
| (Nasdaq: FDLSX) while avoiding Select Technology | | | | in this report. AlphaProfit Investments, LLC neither |
| (Nasdaq: FSPTX). AlphaProfit.com's research | | | | is associated with nor receives any compensation |
| indicates that sector rotation has the potential to | | | | from Fidelity Investments. The investment |
| outperform the market averages on the basis of | | | | returns and examples provided above are solely |
| relative returns as well as risk-adjusted returns. | | | | for illustrative purposes. Past performance is |
| To employ this approach effectively, you need to | | | | neither an indication of nor a guarantee for future |
| understand and follow the dynamics of the | | | | results. No part of this document may be |
| individual sectors. You must also be able to make | | | | reproduced in any manner without written |
| informed decisions on sectors to select and | | | | permission of AlphaProfit Investments, LLC. |
| sectors to avoid. | | | | Copyright © 2004 AlphaProfit Investments, |
| The Impact on Your Portfolio. Strong | | | | LLC. All rights reserved. |