Healthcare, Biotech Funds Win Favor

The month of July showed what has now become evident in the market: The new sectors of focus are health care and biotech.

About half of the largest rating-grade changes were given to health care and biotech funds. The majority of these funds invest in the pharmaceutical and biotech industries, less so in the health care space.

The current market lends itself to a series of sector-rotation strategies if a new trend can be detected early and exited before the sector loses favor. Mutual funds are a great way to see which industries are "in," since funds expose category shifts more than individual stocks, which react more specifically to a company's situation.

On the flip side, the sectors receiving the largest downgrades focused on mid-cap and small-cap funds, which were popular for a while and experienced some support. However, the sustainability of this support is being tested, as shown by the largest downgraded funds below.

Click here for larger image.