Spread Your Risk with Sector Mutual Funds
Sector mutual funds promote themselves as helping to spread the risk of investing. Instead of buying shares of a few companies in the same line of business, you buy a mutual fund that only invests in companies belonging to that sector. With the pool of money brought in from different investors, the mutual fund is able to buy shares of many companies. Thus, you have spread your risk from a few companies to hundreds of companies.
How Many Sectors Are There?
There are not a set number of groups or categories for sector funds. Many of the brokerage houses break them down into eight to twelve groups, and then further break the groups down into sub-groups. If you are looking for one particular group of companies it should not be a problem. While there are not near as many sector funds as typical mutual funds, each brokerage house has many to choose from. And there are always new funds being added. If one sector gets hot and starts growing, then the money flows in and usually a new mix of funds is created. But research those sector funds closely, because they have no history to study.
What Is a Good Sector For Me?
I would have to say that sector funds are something to consider after your overall portfolio is diversified. This is because sector funds carry more risk than a diversified mutual fund. And some sectors carry more risk than others. Any sector that is new or trendy, like the internet companies a few years ago, will carry more risk than say utilities.
With all that being said, any sector that you have researched and feel is going to grow, or a sector that because of technology is going to create some new markets, might be worth keeping an eye on.
Is There Still Too Much Risk?
It is true that buying a sector mutual fund instead of a straight stock purchase of one company will help diversify some of your risk. But does this eliminate enough of the risk that you can sleep at night. Many brokers do not promote sector funds, stating that the fund manager, being restricted to one industry, is not allowed to use all of his expertise. Other brokers promote them heavily, telling us to catch the hot industry in a diversified position.
As was stated previously, if the value of your investments is keeping pace with your goals, and you have some money that you want to speculate with, then maybe sector funds is a good place to start. Instead of trying to pick that next hot stock, pick a sector fund that includes that hot stock. This way you have bought the stock with some diversification.
Sector funds offer an investment tool that allows diversification within one industry. If after researching some similar companies you have a feel that this group is about to grow and prosper, then buying this selective mutual fund will help spread some risk.
However, as whole, sector mutual funds have more risk than most generalized mutual funds. If the industry has a downturn, then your diversification goes out the window. In these large funds, one company cannot pull down the whole group. But if the majority of the companies suffer a setback, then down goes the fund.
Be sure and remember that among the sector funds there is a difference in the risk. An older more establish industry is safer than a newer sector. A good rule of thumb is to not invest over ten percent of your portfolio in sector funds. Do your research carefully and proceed with caution.
If you are interested in market sector analysis, chances are you want to find the sectors that are set for explosive growth and of course you want low risk, you should look at the sleep testing market sector which is set for explosive growth over the next decade.
Around 20 Million Americans alone are estimated to have Obstructive Sleep Apnea, and an unknown greater number have other serious sleep disorders and with the growth of awareness that this is a serious illness and the fact that Government legislation is making sleep testing compulsory is leading to an up surge in sleep testing.
An Opportunity in an Expanding Market
For example, JACHO and other hospital organizations are now insisting people be tested for OSA (Obstructive Sleep Apnea) prior to anesthesia.
Across the USA states are putting into place legislation which means trucking companies have to have a specific “sleep program” which means testing is needed to obtain professional driving licenses.
Laboratory Sleep Tests V Home Sleep Tests
Until recently, sleep tests been conducted in hospitals and independent sleep labs and people have had to travel to these destinations to have a sleep test conducted. People have to travel to these controlled testing areas and in rural locations this can cause major inconvenience, with centres many miles from the patients home and waiting lists in many areas are many weeks or months. More sleep tests are needed and this has led to an explosive growth in home sleep testing which has several advantages over being tested in a outside centre.
Home testing can be offered at a reduced price of up to 50% less than testing in a laboratory, tests can be provided in days and the tests are considered on par with laboratory tests and many believe are better, because the person is being tested in their everyday surroundings.
A Market Sector Set for Exponential Growth for the Next Decade
In terms of market sector analysis, the demand for sleep tests is rising in demand. Home sleep testing companies are filling the void and many are seeking funding and offering investment opportunities and this area is now being looked at by serious investors, seeking high growth potential coupled with limited risk.
The foreclosure crisis is born out of downward-trend of US economy. The foreclosure tornado first hit the residential property sector; made millions of American families forfeit their homes to foreclosure process and walk-off from their long-lived residences, all of a sudden.
The chain reactions caused by the down-turn of economy – foreclosure crisis; credit crunch in the banking sector; erosion of confidence in inter-banking activities; withdrawal of foreign investments; bankruptcies of renowned financial institutions including Lehman Brothers; increased unemployment rate; depletion in purchasing power of the people, and the story continues endlessly.
Eventually commercial property sector has been hit inevitably, due to above reasons. Dearth in occupancy of hotel rooms; vacancies of office complexes; lack of customers in shopping malls; thinning out of crowds in entertainment avenues and enjoyable resorts and clubs – all point towards one thing – loss of revenue and therefore inability to meet mortgage commitments ending in default.
Experts in the field predict that commercial property sector is in for the next big default wave. Of all the types of commercial property foreclosures, the front runner looks like the retail sector – connected directly with buying consumers. According to statistics, retail property prices declined 19.3 percent in the first quarter of 2010, in the top-ten Metropolitan Statistical Areas of Philadelphia; Los Angeles; New York; Washington D.C.; Detroit; Houston; Atlanta; Dallas and Boston.
The dip is coming mainly from retail prices. Here again, the chain reactions of not-so-healthy economy play their roles. Consumer prices are lowered by the Retail Industry, so as to meet the demands and attract the varied interests of the unemployed poor.
The large retail chains are put to pressure in offsetting the loss, by cutting costs, with prices dropping all-around. Cutting costs reflect in postponing or totally abandoning expansion. By curtailing expansion, the whole commercial industry suffocates and the commercial real estate sector ultimately suffers.
What is the remedy? We should have job growth first. This will lead to measurable economic growth and unless and until there is economic growth, the commercial property sector is going to continue melting in the heat – experts point out.
Talking of retail prices, it leads to the brand new financial reform bill titled “The Restoring American Financial Stability Act of 2010” from Senator Dodd, which has been scheduled for a vote. A brief intro says this is the Financial Reform Bill that will “super-size our already inflated government and give the government Czar-like control of your personal financial information.”
Among the many proposals under this bill, there is one to create a new agency, the Bureau of Consumer Financial Protection. This agency will have unprecedented power to aggregate data on everyone and every business financial transaction, anywhere in the US country. The new Bureau will be able to monitor and track all consumer purchases and they can share this data with whomever they wish.
Experts say – if this bill is passed, it will give the government even more reasons to take your money for tax-payer paid programs.
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India is emerging as a next super power country. Days are not far where we can proudly say that our country “India” is one of the superpower countries. There as many hurdles and the distance is quite long. Many things in our country have to be changed, and the first thing is the attitude of people towards society. Apart from attitude, the education and healthcare have to be improved. It is rightly said that in a healthy body lies a healthy mind.
Indian Government is also thinking in the same line. According to the planning commission, expansion in the healthcare sector is the top priority. In the next five-year plan, (2012-2017) the Indian government aims to increase the spending on the healthcare from current 1% of the GDP to 2.5% of the GDP.
In India, there is a vast difference between the quality and price of treatment provided by private hospitals and public hospitals. Private hospitals, although provide better facilities and treatment but a handful of Indian population can afford it. Whereas, the state run, hospitals are of poor standard. Furthermore, most of the medical facilities is in urban India even after 65 years of independence medical facilities are lacking in rural India.
According to a report by FICCI, the Indian healthcare sector is estimated to grow around 14% annually and is likely to become a USD 280 billion Industry by 2020.
Many companies are either thinking of acquisition in the healthcare and life-science sector or has diversified in the sector.
The healthcare and Life Science Strategic Business Unit of Wipro is looking on health and life-science sector as an inorganic growth option.
Electronic maker, Panasonic is planning to enter Indian market to tap the healthcare equipment sector. The company plans to ECG machines, blood bank refrigerator, and diabetes detector. The company may acquire local healthcare equipment manufacturer to penetrate the Indian healthcare equipment market.
Piramal Group is planning to acquire not well to do midsize biotech companies in North America and Europe, and contemplating to form joint venture with bigger pharmaceutical companies overseas. Many International pharma companies are showing interest in acquiring Indian companies. A Japanese company Takeda Pharmaceuticals is in discussion with Indian drug maker companies for acquisition.
Fortis Healthcare is to acquire Fortis Healthcare International from a firm owned by its promoters. The company is planning to set up four new hospitals thereby increasing the bed capacity from 9700 to 10270.
The company is planning to set up 45 bed hospital in Kochi for women healthcare primarily obstetrics and neo-natal services under ‘Fortis La Femme’ brand by 2012.
At Bilaspur, the company is planning to set up 100 beds multi speciality hospital, which will act as a spoke for the Fortis Mohali hub.
Further, the company plans to set up 375 bed a tertiary care hospital at Marathallai in Bangalore in Karnataka. The hospital is likely to become operational by 2013. Plans are on the anvil to manage 50 beds Cardiac Care unit at HLG hospital in Asansol, WB.
To achieve truly high returns at stock investing, an investor should start their search for hot stocks with Industry Sectors. No matter how bad a company’s financials may be, no matter how overvalued a stock is, if a company does business in a hot Industry Sector, the stock will usually move up with the industry.
Just recently we saw the price of gold and oil rising. Naturally, all the companies involved in those areas shot up. Many stocks were going up 300% or more within months. These are the stocks you want to be in.
To find these hot Industry Sectors you can use Yahoo Finance (a free source) or a paid service such as Investor’s Business Daily. IBD lists 197 Industry Sectors. I’ve never bothered to count how many are listed at Yahoo Finance, but it could be close to the same.
With so many Industry Sectors how does one find the best ones? I like to use a 10-Day Price Delta. What this means is that I will take every stock in a sector and add up it’s gain or loss over the past 10 trading days. I then divide that total by the number of stocks in that sector to get an average return for that Industry Sector. I then do this for all 197 Industry Sectors. I know this sounds like a lot of work, I like to be precise.
If you use an Industry Screener you can do it rather quickly. IBD, and other financial websites will keep a list of the top industry groups. You can use those if you like as a starting point for your stock searches.
Once finished I now know how much each sector gained or lost over the past two weeks of trading. I then select the top ten Industry Sectors. It is only now I begin my search for the next hot stock. Only the stocks in the top ten Industry Sectors will even be considered for inclusion on my buy list.
One word of warning though. Stock investors can be fickle. An Industry Sector that is hot this week can be out of favor next week. Likewise, that stock that shot up 300% can come crashing down VERY quickly if the sector cools off. I suggest you run your check on the top Industry Sectors weekly. If the Industry Sector you are in has dropped off the top ten list, I suggest you consider getting out.
Over the last few years the new in vouge investment idea, socially responsible investing has a lot of interest. As environmental issues become more and more prevalent it’s a natural progression. In very simplistic terms socially responsible investing is an investment approach that allows you, the investor, to invest your funds in companies that commonly invest in ways that are compatible with your beliefs. Investing in environmental friendly funds that you support would be a good example of this. As these issues become more important to us, socially responsible investing will become even more popular.
The most common way to invest when it comes to socially responsible investing is through what’s called a sector fund. Sector funds as the name implies focuses its investment objectives in a particular sector. Sector funds are best known for their focus on popular areas. These areas commonly include oil, technological areas, or any other hot sector at the time. Thus, they can be a very valuable tool, allowing you to invest in any area you see fit. So, if an area is hot like real estate was over the last few years you could take advantage of that with a sector fund. Many speculators are currently taking advantage of the rising oil sector. As these trends come to an end, sector funds allow you to move to the next hot area, and so on.
To take a closer look at socially responsible investing we can see that it has evolved over the last couple years. In the past, socially responsible investing was all about supporting the good cause or not supporting a company that you disagree with fundamentally. It’s no longer that way, however, as now the socially responsible investing definition just comes down to aligning your beliefs with a particular investment style, and that can be a slew of different things.
The most common socially responsible investing style can usually fit within one of three different styles. Those typical styles being shareholder advocacy, screening, and community investing. Shareholder advocacy is the influence of a given company by its shareholders to make changes. This could influence a company to stop doing business with a certain entity or a certain way, for example. Screening is probably the most well known and common. It involves not investing in those companies that you disagree with. Maybe, you dislike tobacco companies for their cancer causing issues. You could avoid investing in them. This isn’t always easily done with typical mutual funds, as they own many stocks with little criteria that would align with your beliefs. Community investing can help areas or countries in need of investment funds get much needed capital. This not only spreads good will, but also can be rewarding, as many areas are emerging markets with big potential for investment return.
Socially responsible investing sector funds have grown at an incredible pace. In fact, they’re one of the fastest growing sectors. So, it’s important to note that anytime you invest in a particular sector fund or investment area, you may not be getting the proper diversification that is typically recommended. Make sure to diversify your portfolio. Anytime you’re focusing on just a small area of the market your taking more risk. There can also be sacrifices when eliminating a sector all together. This is a common goal with some socially responsible investing techniques, but can prove costly. Eliminating the oil service sector, for example, during this recent run up would have sacrificed a major portion of your large gainers. Always, check with a professional advisor before implementing an investment plan.
In the world of stock trading there is no one method for finding good stocks to buy with great returns. There is simply to find what works for you and to realize that your trading knowledge can always be improved upon as you gain more wisdom about the markets. Trading stocks is one area of your life where there is always something new to learn.
In this article I will explain one way that works well for me and I will describe step-by-step how to arrive at some really good stock picks for your portfolio. If you have ever followed the financial news you have no doubt heard some of the financial analysts talk about some of those high-flying stocks that cause you to think, “If I only knew about these stocks before they got popular I would finally make some real money.” Well, finding those stocks before the analysts mention them is not only possible, but the more you practice what I am going to show you, it will be very likely that you will notice and trade many stocks before they get the widespread attention given to them by the analysts.
Ever think about what happens to all that money when the stock market goes down or up? If you thought about the fact that when a stock goes down – value simply evaporates, you are onto something important but there is also something far simpler going on here. As stock prices fluctuate an observant person realizes that the money does not evaporate along with value, rather it moves, it changes hands. Think of money like the ebb and flow of the tides. People all over the world commit lots of energy to chasing value and that does not just exist in the stock market. It is everywhere, it is in the currency exchanges, bond markets, you name it. Money is moving all around the globe and when it moves in concert, when many people share the belief that something has value that is where we see the money going. This is a key consideration traders around the globe must consider constantly as they seek to invest their money where they can find the most value appreciation happening.
On a much smaller scale yet no less profitable, this is happening in the stock market every minute of every day and what you will see in a moment is that there are easy ways to see where the money is moving, where some condition exists which is causing an increasing number of traders and investors to accumulate their money in an increasingly favored area of the market.
Every company in a market can be categorized by what industry or sector they are in. Retail, Basic Materials and Energy are a few examples of some widely understood industry sectors. Each of these sectors contain many component stocks assigned to it. More interesting however is that each sector is tracked as to the aggregate performance as if it were an individual stock itself. This is very useful because as a trader you can see how each sector is performing. More importantly – for us as traders, we can compare each sector to one-another as if we are simply comparing two stocks. Taking this simple concept and applying it across many sectors and applying some simple trend analysis, we can easily begin to see which sector is currently in favor.
It is not enough to simply compare any two sectors on a day-to-day basis. While one sector may be outperforming all others today we can not be sure of any underlying performance trend. It is important to look at the performance trend over time to determine whether one sector is gaining in support and overall if it is performing better than other sectors. The goal is to find the best performing sector or the sector that is about to experience great performance according to our trend analysis.
Once we identify the sector with the best potential over all others and we can be relatively certain that the money is flowing into our chosen sector, the next step is to find the component stock within that sector which is contributing to the most to the performance of that sector. This is simply an iterative process where we compare all of the component stocks within that sector until we find the one with the best potential.
The result of applying this simple sector analysis then finding the most promising component stock is that we have identified the strongest stock within the strongest market sector, overall increasing our chances of making a profit from identifying and trading the best of the best.
I have found this method to work consistently enough that I find nearly all of my trades this way and reap fantastic profits from the market. The greatest side-benefit being that the analysts from the financial news often identify and speak about the stocks that I am already trading and I can reap huge rewards as I am consistently one step ahead of the news.
Before we begin to assume and pass judgement on Private and Government Sector it is important to understand the variations between them.
The simplest way to tell the difference is to see who is in charge!
The private sector usually consists of companies that are privately owned and operated; this may include non-profit organisations and charities.
The government sector consists of various divisions, departments and sectors owned by the government. And depending on the country it includes provincial, state, federal, municipal or local governments.
Government departments tend to focus on providing social services to the public as mandated by law and legislation. Whereas the private sector is not so transparent and their focus lies in maximising profits and results.
There are varying degrees of accountability but managing government and private organisations varies significantly.
Although government sectors may appear to be more accountable, the administration process wreaks havoc with their decision making. They tend to lean toward an “avoidance” culture. This may be due to them being under constant public scrutiny. This also supports the assumption that their commitment tends to be weak and as a result accountability is influenced.
Private business on the other hand will take whatever action is necessary to appease their customers whilst remaining focussed on achieving results and profits.
It is not surprising that the corporate culture in government and private sectors are worlds apart.
Creating a great organisational culture leads to results and efficiency. It’s all about best practice and positive outcomes. In a government setting this would lead to greater productivity, fewer resources in less time and positive customer feedback.
Workers who are happy, motivated and feel empowered will achieve greater results, improve the image and reputation of the company. It will also improve customer satisfaction and feedback as opposed to workers who are unhappy, frustrated and disempowered.
I recently had great pleasure in speaking with an innovative government body. They have been focussing on numerous strategies including restructures and applying service delivery models similar to the private sector. They are at the stage where they are exploring more ways to improve their culture, ethics and values. So committed to this change that they prefer to employ people from the private sector. So far the results have been positive.
This has made me wonder about how many private companies would be eager to employ people from the government sector? Would these workers fit in with the established culture that is unique to the private sector?
Another key factor to consider is “Skills”; afterall all employers focus in appointing the right person for the job. Of course another thing to consider is “Best Fit“. The private sector is more focused on commercial behaviour; motivated by profit and results – whereas the government sector is not so forthright, they are more familiar with due process, beauracracy and compliance. Both areas have different views on work ethic, motivation and decision-making ability.
Lets face it – every work place comes with drama and politics; a dear friend once told me that you take the good with the bad and simply get on with it. But it is the culture of the organisation that will ultimately deliver outcomes. Culture; whether it is toxic or healthy is the glue that holds everything together. It acts as a compass that steers everyone in the right or wrong direction.
In our next Article we will explore what it’s like to move out of Private Sector to work in the Public Sector