| 'Sector funds are too risky.' 'I doubled my money | | | | effectively, you need to understand and follow |
| with Fidelity Select Technology in 12 months!' | | | | the dynamics of the individual sectors. You must |
| 'Avoid sector funds.' If all of this sounds confusing, | | | | also be able to make informed decisions on |
| you are not alone. Sector funds are among the | | | | sectors to select and sectors to avoid. At the |
| more misused and misunderstood investments. | | | | end of the day, you should be right more often |
| So, how should you use sector funds? | | | | than wrong with the sectors you select. |
| Before looking at one of the uses of sector funds | | | | AlphaProfit.com's research suggests that by |
| in detail, let's review what sector funds really are: | | | | constructing diversified mutual fund portfolios using |
| Sector funds confine their investments to a | | | | sector funds, investors have the potential to |
| particular sector of the economy. Fidelity Select | | | | outperform the market averages on the basis of |
| Healthcare (NDQ: FSPHX) is an example of a | | | | relative returns as well as risk-adjusted returns. |
| sector fund. By focusing on stocks of companies | | | | The track-record of AlphaProfit's model portfolios |
| in the healthcare sector, the price moves of this | | | | indicates the potential of this approach. |
| fund are more dependent on factors that impact | | | | A Caveat |
| the healthcare sector rather than the economy as | | | | Diversification is one of the cornerstone principles |
| a whole. Demographic change, such as increasing | | | | of mutual fund investing. Sector funds that focus |
| age of the population, is an example of a factor | | | | on high-growth sectors or narrow niches of the |
| that particularly drives investments in healthcare. | | | | economy tend to be volatile. It is generally not |
| By diversifying its assets across over 60 | | | | advisable to commit a substantial portion of your |
| companies within the healthcare sector, Fidelity | | | | total assets to a single sector fund. Maintaining |
| Select Healthcare provides investors with the | | | | adequate diversification across sectors in your |
| opportunity to benefit from secular trends driving | | | | overall mutual fund portfolio is good investing |
| the demand for healthcare while mitigating | | | | practice. |
| company-specific risks such as failure of clinical | | | | Key Points to Remember |
| trials conducted by a particular company. | | | | 1. Sector funds are investment vehicles that |
| Let's now look at a high-potential approach of | | | | focus their investments on a particular sector or |
| using sector funds. | | | | industry group. Sector funds provide investors |
| Using sector funds to create a diversified mutual | | | | with an opportunity to profit from trends |
| fund portfolio By allocating assets across a group | | | | impacting a particular sector or industry while |
| of sector funds, investors can effectively create | | | | reducing company-specific risks. |
| a diversified mutual fund portfolio using sector | | | | 2. High-potential diversified portfolios can be |
| funds. This approach gives the investor flexibility | | | | constructed by dividing assets among a group of |
| to over-weight or under-weight certain sectors | | | | sector funds. This active investment approach |
| versus broadly diversified indexes such as the | | | | requires investors to make informed decisions on |
| S&P 500®. | | | | sector selection. The power-packed cluster of |
| To implement this active approach to money | | | | sector funds may offer investors the potential to |
| management, it helps to have a diverse group of | | | | outperform the market averages. |
| sector funds to choose from. Fidelity Investments | | | | 3. Diversifying mutual fund portfolios across |
| manages 41 sector funds under the Fidelity Select | | | | sectors is good investing practice. |
| Portfolios® umbrella which makes this family | | | | Notes: This report is for information purposes |
| of sector funds well-suited for this purpose. By | | | | only. Nothing herein should be construed as an |
| dividing assets across, say, 8 sector funds in the | | | | offer to buy or sell securities or to give individual |
| Fidelity Select Portfolios, e.g., Fidelity Select | | | | investment advice. This report does not have |
| Biotechnology (NDQ: FBIOX), Fidelity Select | | | | regard to the specific investment objectives, |
| Computers (NDQ: FDCPX), Fidelity Select Energy | | | | financial situation, and particular needs of any |
| Service (NDQ: FSESX), Fidelity Select Home | | | | specific person who may receive this report. The |
| Finance (NDQ: FSVLX), Fidelity Select Medical | | | | information contained in this report is obtained |
| Delivery (NDQ: FSHCX), Fidelity Select Multimedia | | | | from various sources believed to be accurate and |
| (NDQ: FBMPX), Fidelity Select Retailing (NDQ: | | | | is provided without warranties of any kind. |
| FSRPX), and Fidelity Select Wireless (NDQ: | | | | AlphaProfit Investments, LLC does not represent |
| FWRLX), one can build a customized diversified | | | | that this information, including any third party |
| portfolio. With each of the sector fund managers | | | | information, is accurate or complete and it should |
| actively scouting for the best investment ideas | | | | not be relied upon as such. AlphaProfit |
| within their sectors, this cluster of Fidelity Select | | | | Investments, LLC is not responsible for any |
| Portfolios packs a lot of power into your | | | | errors or omissions herein. AlphaProfit |
| diversified portfolio. | | | | Investments, LLC disclaims any liability for any |
| Other mutual fund families that provide a | | | | direct or incidental loss incurred by applying any of |
| relatively wide choice of sector funds include | | | | the information in this report. |
| ProFunds and Rydex Funds. Exchange traded | | | | The third-party trademarks or service marks |
| sector funds such as Select Sector SPDRs, | | | | appearing within this report are the property of |
| iShares, and Sector HOLDRS, that trade on the | | | | their respective owners. All other trademarks |
| American Stock Exchange, can also be used to | | | | appearing herein are the property of AlphaProfit |
| construct diversified sector fund portfolios. | | | | Investments, LLC. Past performance is neither an |
| The wide selection of sector funds available | | | | indication of nor a guarantee for future results. No |
| provides you with the ability to take advantage of | | | | part of this document may be reproduced in any |
| changing market conditions and continually | | | | manner without written permission of AlphaProfit |
| optimize the risk-reward characteristics of your | | | | Investments, LLC. Copyright © 2004 |
| diversified portfolio. To employ this approach | | | | AlphaProfit Investments, LLC. |