Global Mutual Funds and Sector Mutual Funds Compared

Shawn | Dec 26, 2010 |

0 Comments | Rating: 0

To understand global mutual funds, one needs to juxtapose these financial instruments with the so-called international mutual funds. The two are obviously both mutual funds, but while the first kind consists of American, European, Asian and developing market investments the latter kind is entirely devoid of any American component. Investors or mutual fund managers will have different reasons for preferring one or the other. For example, one convenient excuse for going with global mutual funds is diversification, which serves as a bulwark against losses. In other words, by diversifying ones holdings, the individual is said to be protecting his or herself from the undesirable scenario of losing across the board.

Hence, in the interest of diversification, global mutual funds win handily over the other kind. Sector mutual funds are yet another type of mutual funds, which specialize on particular sectors of the economy. Examples are health care, energy, or technology funds. The reasons are obvious for going by sector. After all, technology funds have done very well in the past few years, while energy funds can only go up in value as humankind nears an energy crunch. Meanwhile, solar energy funds are the rising star in the sector portfolio as countries like Canada and Germany put more premium on solar power generation in keeping with environmental commitments, or the mere pressure of global warming.

Of course, a rule of thumb is not to put all the eggs in one basket. Still, some aggressive investors like George Soros consistently break away from such practice, taking his chances with certain sector mutual funds for a cause, often without considering any gains in the future. Ironically, however, Soros seems not to only lead in the game, but more often than not, ends up winning. Apparently, the rule of thumb is not that cut and dried, after all.

Perhaps the deeper question is, is it better to be a philanthropist or a realist to succeed or survive in this business. Realists are known to make rational decisions, like Jack Welch, former CEO of General Electric. They base their decisions on market factors, not their emotions. Although they may follow their gut feel, they also make sure that they have conducted a thorough analysis of the market.

Unfortunately, market forces do not often favor the pragmatic investor. In the end, going with global mutual funds or sector mutual funds is a matter of style and only time will tell if economics will validate ones choice. Sometimes, though, it is just a matter of casting ones lot or staying invested, than not to have done so at all.