Sector Fund Investing

Explore Sectors

A market sector is a specific segment of the economy in which businesses share the same or a related product or service. External events can affect economic sectors differently. By evaluating how these events may affect the relative attractiveness of the different sectors, investors can use sectors to pursue growth, diversify portfolios, and manage risk.

All companies are classified into one of 11 different sector groups.

Understanding Market Cycles and Sectors

There are four segments to the market cycle:

 

Recovery

• Consumer expectations improve
• Monetary policy remains accommodative
• Inflation declines

 

Expansion

• Growth reaches peak
• Interest rates start to rise
• Consumer expectations level off

 

Slow Down

• Consumer confidence wanes
• Positive but slower growth
• Inflation starts to rise

 

Recession

• Low consumer confidence
• Falling demand from consumers and business
• Increased unemployment
• Easing monetary policy
• Contractionary domestic production

Because different sectors perform differently in each segment of the cycle, understanding the differences between each market cycle segment is valuable. Keep in mind that sector performance in each market cycle as shown below, is generalized, as sectors do not always under- or outperform as indicated.

Market Cycles and Sector Methodology: To study how different sectors performed through various business cycles, changes in the Conference Board Leading Economic Indicator Index (LEI) were used to segregate business cycles as follows:

• Recovery—the period in which LEI YoY (year over year) rebounds from a trough but is still negative;
• Expansion—the period in which LEI YoY becomes positive and moves up to a peak; and
• Slow Down—the period in which LEI YoY is falling from its peak but is still positive.
• Recession—the period in which LEI YoY turns negative to the point it hits a trough;

Since Global Industry Classification Standard (GICS) sector classification has a limited performance history, in order to get a comprehensive account of sector performance over multiple cycles, performance of the Kenneth French 48 SIC-based (Standard Industrial Classification) industry portfolios was used, based on the latest GICS sector definitions (wholesale was excluded as it fit multiple GICS sectors). The SIC-based portfolios are made up of the stocks of the NYSE, AMEX, and NASDAQ exchanges, segregated into 48 industry portfolios based on their SIC code. Industry performance (based on total return) was equal weighted to create a longer sector performance history dating back to 12.01.1960, the beginning of an expansion.

Examine Sector Investing Strategies

Sectors may be used as a means of deconstructing the overall market, or as a way of expressing tactical shifts over time. They offer specific exposure to certain areas of the market to pursue growth, enhance diversification or limit risk. Explore some of the ways that sectors can be used in a portfolio.

Discover Modified Cap-Weighted Sector Funds with Rydex

Rydex sector funds are different from other sector funds in that they use a modified cap-weighting approach to sector fund investing. A modified cap weighting approach adjusts the weights of each stock away from a cap weighted approach to reduce the dominance of mega-cap stocks in a portfolio. Generally, stocks are weighted by the square root of their market capitalizations which results in a portfolio that provides stock weights that lie between cap weighting and equal weighting.

Consider Rydex Sector Mutual Funds

Guggenheim makes it convenient to implement a sector strategy with our wide selection of 18 Rydex sector mutual funds, many with a 20-year performance history. Rydex funds offer unlimited exchange privileges, with no holding periods or transaction fees, among equivalent share classes of Rydex funds, as well as transparency through daily holdings listed on our website. Click on the icon to discover more about your favorite sectors. Other fees and expenses may apply. Read each fund's prospectus for more information.

Banking	Basic Materials	Biotechnology	Consumer Products	Electronics	Energy
Energy Services	Financial Services	Health Care	Internet	Leisure	Precious Metals
Real Estate	Retailing	Technology	Telecommunications	Transportation	Utilities

Sector funds may not be suitable for all investors. Investing in sector funds is more volatile than investing in broadly diversified funds, as there is a greater risk due to the concentration of the fund’s holdings in issuers of the same or similar offerings. These funds are considered nondiversified and can invest a greater portion of their assets in securities of individual issuers than a diversified fund. As a result, changes in the market value of a single security could cause greater fluctuations in the value of fund shares than would occur in a more diversified fund.

Evaluate Rydex Sector Momentum Models

Review and evaluate more than 30 sector price momentum models that use 18 Rydex sector funds to rotate to sectors that are displaying relative strength. Financial Professionals Only.