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Using Sector Funds to Construct Diversified Mutual Fund Portfolios

Apr 21

Posted by Sam Subramanian in investing, mutual fund, stocks, strategies | No Comments

Sector funds are too risky. I doubled my money with Fidelity Select Technology in 12 months! Avoid sector funds. If all of this sounds confusing, you are not alone. Sector funds are among the more misused and misunderstood investments. So, how should you use sector funds?

Before looking at one of the uses of sector funds in detail, lets review what sector funds really are: Sector funds confine their investments to a particular sector of the economy. Fidelity Select Healthcare (NDQ: FSPHX) is an example of a sector fund. By focusing on stocks of companies in the healthcare sector, the price moves of this fund are more dependent on factors that impact the healthcare sector rather than the economy as a whole. Demographic change, such as increasing age of the population, is an example of a factor that particularly drives investments in healthcare. By diversifying its assets across over 60 companies within the healthcare sector, Fidelity Select Healthcare provides investors with the opportunity to benefit from secular trends driving the demand for healthcare while mitigating company-specific risks such as failure of clinical trials conducted by a particular company.

Lets now look at a high-potential approach of using sector funds.

Using sector funds to create a diversified mutual fund portfolio By allocating assets across a group of sector funds, investors can effectively create a diversified mutual fund portfolio using sector funds. This approach gives the investor flexibility to over-weight or under-weight certain sectors versus broadly diversified indexes such as the S&P 500.

To implement this active approach to money management, it helps to have a diverse group of sector funds to choose from. Fidelity Investments manages 41 sector funds under the Fidelity Select Portfolios umbrella which makes this family of sector funds well-suited for this purpose. By dividing assets across, say, 8 sector funds in the Fidelity Select Portfolios, e.g., Fidelity Select Biotechnology (NDQ: FBIOX), Fidelity Select Computers (NDQ: FDCPX), Fidelity Select Energy Service (NDQ: FSESX), Fidelity Select Home Finance (NDQ: FSVLX), Fidelity Select Medical Delivery (NDQ: FSHCX), Fidelity Select Multimedia (NDQ: FBMPX), Fidelity Select Retailing (NDQ: FSRPX), and Fidelity Select Wireless (NDQ: FWRLX), one can build a customized diversified portfolio. With each of the sector fund managers actively scouting for the best investment ideas within their sectors, this cluster of Fidelity Select Portfolios packs a lot of power into your diversified portfolio.

Other mutual fund families that provide a relatively wide choice of sector funds include ProFunds and Rydex Funds. Exchange traded sector funds such as Select Sector SPDRs, iShares, and Sector HOLDRS, that trade on the American Stock Exchange, can also be used to construct diversified sector fund portfolios.

The wide selection of sector funds available provides you with the ability to take advantage of changing market conditions and continually optimize the risk-reward characteristics of your diversified portfolio. To employ this approach effectively, you need to understand and follow the dynamics of the individual sectors. You must also be able to make informed decisions on sectors to select and sectors to avoid. At the end of the day, you should be right more often than wrong with the sectors you select.

AlphaProfit.coms research suggests that by constructing diversified mutual fund portfolios using sector funds, investors have the potential to outperform the market averages on the basis of relative returns as well as risk-adjusted returns. The track-record of AlphaProfits model portfolios indicates the potential of this approach.

A Caveat

Diversification is one of the cornerstone principles of mutual fund investing. Sector funds that focus on high-growth sectors or narrow niches of the economy tend to be volatile. It is generally not advisable to commit a substantial portion of your total assets to a single sector fund. Maintaining adequate diversification across sectors in your overall mutual fund portfolio is good investing practice.

Key Points to Remember

1. Sector funds are investment vehicles that focus their investments on a particular sector or industry group. Sector funds provide investors with an opportunity to profit from trends impacting a particular sector or industry while reducing company-specific risks.

2. High-potential diversified portfolios can be constructed by dividing assets among a group of sector funds. This active investment approach requires investors to make informed decisions on sector selection. The power-packed cluster of sector funds may offer investors the potential to outperform the market averages.

3. Diversifying mutual fund portfolios across sectors is good investing practice.

Notes: This report is for information purposes only. Nothing herein should be construed as an offer to buy or sell securities or to give individual investment advice. This report does not have regard to the specific investment objectives, financial situation, and particular needs of any specific person who may receive this report. The information contained in this report is obtained from various sources believed to be accurate and is provided without warranties of any kind. AlphaProfit Investments, LLC does not represent that this information, including any third party information, is accurate or complete and it should not be relied upon as such. AlphaProfit Investments, LLC is not responsible for any errors or omissions herein. AlphaProfit Investments, LLC disclaims any liability for any direct or incidental loss incurred by applying any of the information in this report.

The third-party trademarks or service marks appearing within this report are the property of their respective owners. All other trademarks appearing herein are the property of AlphaProfit Investments, LLC. Past performance is neither an indication of nor a guarantee for future results. No part of this document may be reproduced in any manner without written permission of AlphaProfit Investments, LLC. Copyright 2004 AlphaProfit Investments, LLC. All rights reserved.

Author: Sam Subramanian
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Your Biggest Money Decision

Mar 31

Posted by admin in investing, mitigating risk, strategies | No Comments

Before worrying about your nest egg, you need to sit down with an attorney and draft a will. MoneyWatch’s Jill Schlesinger explains.

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How to benefit from rising interest rates.

Mar 26

Posted by admin in commodities, investing, mitigating risk, mutual fund, real estate, stocks | No Comments

If interest rates start to rise, there are ways you can benefit!


While interest rates have been at a record low, it has been hinted that those days are soon over. Typically, higher interests rates are dreaded, as they lead to lower stock prices and higher home costs. However, there are some investments that do actually benefit from rising rates. In these confusing and dire economic times, it is important to learn how to fluctuate in time with the economy.

If interest rates do actually increase, as had been hinted by Federal Reserve Chairman Ben Bernanke, one of the ways you can benefit is by boosting your short-term savings. When interest rates increase, there are better returns from your cash and other short-term investments. Putting funds in money market mutual funds invests in a mix of stable, short-term instruments and you can access your funds quickly. It can also benefit you to put funds in certificates of deposit (CDs) to ensure that your money is easily accessible to you.

If interest rates are going to rise, it is very important to try and pay as much of your debt off as possible. Because credit card debt is already at a high rate, it is probably best to start by paying that off. Next, work to pay adjustable rate loans off. If you have an adjustable rate mortgage, consider refinancing into a fixed rate loan because mortgage rates are very low currently and will most likely increase regardless.

In short, if interest rates increase, benefit from the rise by boosting your short-term savings and building up your emergency funds with money market funds and CDs. While reaping the benefits, make sure you lower your debts to avoid a rise in your monthly payments.

About the Author

*This article was contributed by consumer protection/bankruptcy Attorney Jonathan Ginsberg, our expert bankruptcy contributor whose website can be found at: http://www.thebklawyer.com/thebkblog/


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Search MLS, find an experienced Realtor, and more!

Mar 16

Posted by admin in investing, mitigating risk, real estate | No Comments

If you are are looking for a Realtor to help you buy or sell your next home we’d like to help!  Buying/selling a home can be a stressful experience if you don’t work with knowledgeable professionals.  Black Swan Management, LLC would like to put you in touch with a full-service real estate brokerage that serves 34 major cities, offers guaranteed customer service and cash back to home buyers and sellers!

In addition, you can search the Multiple Listing Service (MLS) from the comfort of your own home!  If you live in, or are looking to move to or invest in any of the following areas you definitely need to check this out!

Arizona: Phoenix, Tucson California: Bakersfield, Los Angeles, Orange County, Sacramento, San Diego, San Francisco. Colorado: Denver Florida: Jacksonville, Orlando, Tampa, Miami, Palm Beach Georgia: Atlanta Illinois: Chicago Maryland: Baltimore Massachusetts: Boston Minnesota: Minneapolis-St. Paul Nevada: Las Vegas New York: Long Island, Westchester County North Carolina: Charlotte, Raleigh-Durham Pennsylvania: Philadelphia Texas: Austin, Dallas-Ft. Worth, Houston Utah: Salt Lake City Virginia: Richmond, Norfolk-Virginia Beach Washington: Seattle Washington DC metro area New York: Long Island, Westchester County, North Carolina: Charlotte, Raleigh-Durham, Pennsylvania: Philadelphia, Texas: Austin, Dallas-Ft. Worth, Houston, Utah: Salt Lake City, Virginia: Richmond, Norfolk-Virginia Beach, Washington: Seattle Washington DC metro area

Search for homes in the Atlanta MLS!

Search for MLS listed homes in Philadelphia and South Jersey

Search for homes in the DC Metro Area MLS!

Search for homes in the Las Vegas MLS!

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Market Conditions

Mar 16

Posted by admin in commodities, investing, mitigating risk, mutual fund, real estate, stocks | No Comments

Money Market Recap and Forecast

Treasury prices took a tumble on the heels of the February employment report two Fridays ago.  Yields, which move in the opposite direction of prices, rose and remained high all of last week.

There were no reports to encourage buying in Treasuries.  And Wall Street was pretty quiet.  Bond traders were concerned about the $84 billion in government debt going on the auction block, but demand was very strong.  Nevertheless, worry persists that huge supply will water down demand.

Monday and Tuesday were void of reports, and there might as well not have been any on Wednesday, considering it was on wholesale inventories for January.  They went down 0.2%.

Thursday’s report on first-time unemployment claims for the week ended March 6 showed another decline.  Claims dropped by 6,000 to 462,000, which was slightly lower than the 460,000 forecast.  The four-week average, which smoothes volatility, rose by 5,000 to 475,000 — the highest level since November.  And continued claims, those collecting benefits for more than one week, rose to 4.56 million.  But there was little reaction in bonds, as traders focused on the 10-year auction.

The U.S. trade deficit shrank to $37.3 billion from a revised $39.9 billion, but trading was unaffected.

Friday’s better-than-expected report on retail sales spurred selling, pushing the yield on the 10-year note even higher.  Sales rose 0.3% in February versus a 0.5% gain the previous month.  Excluding autos, sales rose 0.8%, better than January’s 0.6% increase.

The Reuters/University of Michigan preliminary consumer sentiment report for March unexpectedly fell to 72.5 from 73.6, pushing the yield on the 10-year back down.  The final report showed business inventories for January were unchanged.

Although mortgage rates ticked up during the week ended March 5, the Mortgage Bankers Association said that purchase applications rose 5.7%, while refis were off by 1.5%.  Some believe purchases will stay healthy as home buyers rush to meet the new tax credit deadline.

Unlike last week, there are several reports coming out that could influence trade, for better or for worse.

This week begins with Monday’s NY Empire State index on manufacturing conditions for March.  It’s expected to fall to 23.45 from 24.91, which could encourage buying in Treasuries.

However, trading could be subdued as this is the day prior to the Fed decision on interest rates.  Although no rate hike is expected, the markets will be looking for any clues about when that might happen.  They especially want to know if rates will remain low “for an extended period.”  This phrase probably won’t be removed on Tuesday, but when it is a big sell-off will likely follow.

Earlier in the day, data on February housing starts/building permits are due, with declines expected in both categories.  Starts could fall to an annual rate of 587,000 units from 591,000, while building permits are expected to decline to an annual rate of 587,000 from 591,000.

Separately, industrial production in February is expected to come in flat versus a 0.9% increase in January.  Capacity utilization should dip to 72.3% from 72.6%.  These reports could energize buying in bonds.

Wednesday the producer price index, or PPI, which checks for wholesale inflation, is not expected to find any.  It should show a 0.1% decline for February — far better than the energy-induced 1.4% rise the previous month.  Likewise, the more closely watched core rate, which eliminates food and energy prices, is expected to climb by a tame 0.1% versus 0.2% in January.

Thursday’s consumer price index, which checks retail price inflation, should show similar results.  Both the index and the core rate are expected to rise 0.1%, which bond traders should like.

First-time claims for the week ended March 13 are unpredictable.

The Philly Fed index on March manufacturing conditions could affect trading if it moves sharply up or down, as it has lately.  Right now it sits at 17.6, so three or four points either way could move Treasuries.

Leading economic indicators for February should rise 0.2% — a little slower than the 0.3% increase in January.  This report, however, usually has little impact on trading — nor does business inventories for January, which could rise 0.1%.

No reports are scheduled for Friday.

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4 Biggest Lies in Real Estate

Mar 9

Posted by admin in internet business, investing, marketing, mitigating risk, real estate | No Comments

This post was originally published at CBS MoneyWatch and was written by Ilyce Glink.

A funny thing about the digital age — the more information we have access to, the more misinformation we get hit with. In the not-so-long ago days when the Internet was mainly for e-mail and facebooks were made of paper, homes were mostly advertised through newspaper ads. As long as you understood that TLC meant you needed to be handy with a hammer and an “efficiency kitchen” meant you’d better like take-out, you could avoid getting suckered.

Anyone gearing up to buy or sell a house this spring, however, has to bring a bit more skepticism to the process. Sure, the Internet has transformed the process of buying and selling a home in wonderful ways, but it has also increased the opportunities for mischief. Fall for bogus listings and lousy home price “data” and you could wind up overpaying for a home or finding yourself stuck, unable to unload the one you have. Don’t get taken by these big lies:

1. Phony Photos and Videos

Digital photos and video have been a godsend for real estate agents, homebuyers and sellers, enticing prospects to drool over images of Viking ranges, sparkling pools and lush lawns. Lately, agents have been posting interactive photos and floor plans, letting buyers view rooms and exteriors from different vantage points. Some houses have their own YouTube sites.

Problem is, it’s easy to Photoshop photos and edit video to make a house and its neighborhood seem far more attractive than they are. Some sellers post photos of kitchens and gardens you won’t find in the actual property. Videos get color-corrected so the grass, flowers and trees seem fresh and alive. A house may seem newly painted, even though the photo was taken five years ago.

Get the Truth: Go to Google Street View or Microsoft Live Search Maps for a reliable third-party look at a neighborhood or home exterior. They won’t show the inside of a house, though, so you’ll need to drive to the property and see it for yourself.

2. Valuations Lacking Value

Knowing how much a house is truly worth is vitally important whether you’re a buyer or seller. With home values down an average of 30 to 40 percent since 2005 in major metro areas, every penny counts. But you can’t always trust the numbers on home valuation sites such as Zillow,CyberHomes and Realtor.com.

When I plugged in a particular 5-bedroom/4-bath house on these sites, I received vastly different valuations and sometimes incorrect information about the number of bedrooms and bathrooms it had. I’d estimate the house is worth between $1.2 and $1.4 million. Zillow’s “Zestimate” (a calculation also used by RealEstateABC.com) was $943,000; CyberHomes suggested a range of $960,000 to $1.2 million and Realtor.com went with $788,036.

Get the Truth: It’s fine to start with online valuation sites for ballpark estimates. But to get a reliable valuation, get out of the virtual world and into the real world. If you’re selling, invite several real estate agents to walk through your home and analyze its value based on recent comparable sales. You might also hire an independent appraiser (cost: around $350 and up). If you’re buying, hire an agent who has worked the area for years, if not decades. It’s generally a waste of money for a buyer to hire an appraiser, since the lender will require its own appraisal before granting a mortgage.

3. Mortgage Rates You Can’t Get

Visit a mortgage aggregating site such as Bankrate.com and you’ll naturally want to apply for the lowest rate shown. But that rate may not really exist — at least not for every applicant.

Mortgage lenders often advertise fake low rates online without explaining that you can’t get them if your down payment or credit score is too low or you’re not willing to pay extra-high closing costs. At worst, the rate may be a “bait and switch” and wholly unavailable.

Get the Truth: Start your mortgage shopping by identifying a well-known national or regional bank, a small local lender, a well-regarded mortgage broker, a credit union (if you belong to one or can join one), and an Internet mortgage aggregator such as Priceline. Then go toAnnualCreditReport.com to pull a copy of your credit history and to pay to get your credit score. Next, find out what each lender on your list would really charge for your loan. Use the quotes to negotiate the best deal.

4. Unreal Property Descriptions

The old saw, “You can’t believe everything you read” is often true about online listings. A property advertised as having a “water view” might feature a glimpse of the ocean if you open the window, stick your head out, and look left.£ A “light, bright” apartment implies loads of sunshine, but may instead describe the wattage from overhead lighting. A condo’s listing sheet promoting “Southern exposure” might leave out a key fact: The front rooms look south, but the rest of the place faces a warehouse 10 feet away. A mention of an “in-law” or “rentable” apartment over the garage won’t say whether renting out that room is illegal, subjecting you to a future showdown with local zoning officials.

Get the Truth: To weed out unreal estate, do some fact-checking. If the beachfront condo supposedly has a water view, tell the broker to e-mail you a floor plan for the entire building. When a listing sheet says the house had a substantial renovation, check it out before you get too excited. And if you get serious about the property, you can always ask the town building department to confirm a renovation; there may be blueprints on file. If you’re counting on renting out a room above the garage, ask the building department if it’s allowed.

Bonus: Euphemism Alert

One thing that the digital revolution hasn’t changed at all — the extraordinary ability of real estate agents to put lipstick on a pig. Here’s a guide to words and catchphrases you’re likely to encounter and what they really mean:

The Listing Says… The Listing May Mean…
Cozy/Dollhouse The house is tiny, cramped and everyone over 6 feet tall will bump their head on the ceiling.
Handyman’s Special You’ll need to do a gut remodel if you want to make the home livable.
Great View You might have to crane your neck out the window to see the water.
Rentable In-law Apartment This might be a separate room, a half-finished basement, or completely illegal.

About the Author

Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and the upcoming Buy, Close, Move In!. She blogs about money and real estate onMoneyWatch and at ThinkGlink.com.

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