What are sector and specialty funds?

Sector funds, also known as specialty funds, are mutual funds and ETFs (exchange-traded funds) that concentrate on a specific industry or market. These funds take a targeted approach and invest only in companies in certain segments of the economy.

Are specialty funds a risky investment?

Vanguard classifies sector funds as aggressive, which means they can be subject to extremely wide fluctuations in share prices. At a high level, here are some of the risks involved with specialty funds: Industry concentration risk. A fund that targets a specific industry will generally be more volatile than one that invests more broadly.

How are mutual funds classified?

Mutual funds can be classified based on the types of investments they hold: Stock mutual funds. Also called equity funds, this type of mutual fund owns shares of stock in public companies. Equity fund investors generally want more appreciation than income payments—or yield—although there are specialized dividend funds that aim to generate yield.