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Commentary

Are You Overpaying for Your Sector Fund?

Specialized sector funds can mean higher fees for investors.

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More and more investors are turning to sector funds and their targeted stock strategies, especially when it comes to playing trends among technology, healthcare, and energy stocks. In the process, many investors are paying higher for those funds' fees despite a wealth of low-cost options.

Sector funds are an easy way for investors to home in on short- and long-term trends among targeted industries. Funds falling into this group can be relatively simple, index-tracking portfolios that cover broad stock market sectors, such as with the largest sector fund, the $75 billion Vanguard Real Estate Index Fund (VGISX), or focusing on narrower industries and products, such as Global X Lithium & Battery Tech ETF ((LIT)). In addition, there are so-called thematic funds, which includes actively managed portfolios seeking to capitalize on secular trends, such as the ARK Genomic Revolution ETF (ARKG).

Katherine Lynch does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.