Smarter Money: Don't Get Sucked In by Sector Mania

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The mutual fund industry is pushing too hard on sector funds. The industry's doing wrong by you. The lesson of last year was that a sector fund, particularly a tech sector fund, doesn't provide enough diversification to merit your investment.

This week the Fund Junkie (Ian McDonald), who may be the best funds reporter in the country, wrote a terrific piece about the promotion of sector funds and wondered aloud whether it was right. I don't have to wonder. I know it is wrong. I know it is wrong because sector is really a code name for technology and at this moment I can't think of anything worse than a basket of technology stocks as a method of investment.

Don't get me wrong, I like technology for the ultimate future. I think it should be in your portfolio. But this ad push makes it sound like it should be your portfolio. And that's what's ill-considered. Right now, tech is undergoing one of those massive revaluations downward that I have seen other sectors go through after they peaked. Each time, the sector funds tried to attract attention to these groups after they have peaked. There was a massive push for oil and gas sector funds after the early '80s boom. We saw a food products sector push after the mid '80s consolidation. And we saw a pollution control sector fund sponsorship after that sector peaked in the late '80s. People lost fortunes in each. ...