Technology Mutual Funds

Technology mutual funds invest in companies that develop, produce and distribute high technology products and services. This sector is so diverse that it appears that those who labeled the sector "Technology" couldn't agree on where to draw the line. You'll find a lot of subsectors within this sector, including some that might better be included in other sectors and some so unique that they could easily be sectors themselves.

The larger Technology funds are necessarily broad in scope, as they'd be hard pressed to find enough good investments in a narrow subsector. But some of the smaller funds are very narrow in scope, such as Semiconductors and Software. Then there are the ones that appear to be lost or misplaced, such as Biotechnology. And where do you put video games? It depends on the fund manager. Some would say Technology and others would say Leisure or Consumer Electronics, two sectors that I didn't list because they don't show up in many lists of sector funds.

Even with the bursting of the tech bubble in the early 2000s, the Technology mutual funds delivered good returns, all-be-it with a lot of volatility, but the returns were commensurate with the volatility. However, this sector is highly correlated with the general market and is well-represented in broadly diversified mutual funds, thus it doesn't have much to offer as a diversifier.

So, what do Technology mutual funds have to offer? Well, many would say that over-weighting Technology makes sense because technology represents the future and, as such, it should continue to be a growth sector that out-performs the market. But the technology sector has the potential to give you a real rough ride, with high returns occasionally being wiped out when nervous investors simultaneously jump ship. You'll have to consider the facts and form your own opinion and, as usual, consider the probable effects on your portfolio, which will require coming up with projections of future returns and volatility to plug into your model unless you feel the future is accurately reflected in the past.

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Move on to the next subsection, Telecommunications Mutual Funds.