Sector Investing

[Spanky]

Most experts advise against sector fund investing. They call it speculation. I think it is okay to invest up to 5% of your portfolio for sector play. My current choice would be health care, consumer staples, and energy (or utilities). These are available from Vangaurd Vipers. Any opinion?

 

[lazyday]

I like to overweight Health Care in the hope it could be a partial hedge against my health care costs. HC will likely become a disproportionately large part of my spending, and is a high-risk expense for me, being on individual health insurance policies.

Speculatively, I don't know if I prefer US (or global) HC, over other US (or global) Largecap Growth, though I did when I last added to VGHCX. It has outperformed my portfolio though, since then. And, I believe, has outperformed VUG since I bought that, fairly recently--though VUG is US only (large growth).

If I were picking sectors, I might underweight energy today. Haven't run the numbers, but suspect it's pricey. I prefer commodity futures (PCRIX) in my portfolio, for their historically low correlation to stocks, and potentially good returns compared to bonds.

 

[TromboneAl]

I agree. A little sector investing adds a bit of spice.

It's kind of like Buy-and-hold-index-investors gone wild.

I bought the Vanguard Health Care fund the day after election day, and it's gone up 12% so far. For me, this is like going to Vegas.

 

[wildcat]

I say there is nothing wrong with shifting some money around as long as it is not the majority. I think ETFs are made for that IMHO......

Waiting for Unclemick's male hormone comment

 

[cute fuzzy bunny]

Huh, I own all four of vanguards sector funds and they're among my best performers.

Precious metals - 3%
Reit - 10%
Healthcare - 3%
Energy - 3%

 

[laurence]

TH, wouldn't three of those - REIT, Energy, and metals - be considered more of a whole market diversification than a sector play? By that I mean, 4 pillars argues against buying sector funds of the stock market, but thinks commodities, energy, precious metals, reits etc. are sound diversification tools due to their low correlation. Healthcare, hmmm, I bet you've made a bundle off that, but how much longer can that industry's cost far outstrip inflation without riots in the streets? Ech, now I sound like a dirty market timer!

 

[cute fuzzy bunny]

Uh oh, are we going to try to define the difference between a hunk of market based on what kind of business it is and a "sector"? I dont think I can do that. Real Estate, Health Care, gold and silver stocks and Energy stocks *are* sectors!

And yep, I made plenty on healthcare. Had half of my IRA in it for a while, moved into REIT a couple of years ago. Ready to move a large hunk from there to somewhere else, as soon as I can find out what that might be. Would love a dip on Energy to add to that holding. I think Healthcare almost HAS to be nationalized at some point in the next 5-10 years. Or nobody will be able to afford insurance or out of pocket care, which means the money stops. That sort of has a way of changing things, when a lot of big earners suddenly have no income stream or they're chasing fewer customers. Real Estate I think has also topped out for a while. Energy though...that might have some legs for a while...

'Scuse me while I go wash my hands in some chlorine bleach...or waitaminnit...given the 90 degree weather coming I need to set up my little intex pool and that'll have some chlorine in it!

 

[TromboneAl]

...how much longer can that industry's cost far outstrip inflation without riots in the streets?

People will be too sick to go our rioting.

 

[laurence]

I'm going to re-read that section and post a more educated reply after, I just remember him talking about not investing in sector funds, yet at the same time talking about small positions in gold, and reits....I'll attempt to reconcile my memory unless you can give me the readers digest version here.

 

[JLP]

Another way to invest using sectors is to simply put equal dollar amounts into each of the ten sectors that make up the Dow Jones Total Market Index.  By rebalancing annually, you sell those sectors that have appreciated and buy more of those that have underperformed.

 

[laurence]

People will be too sick to go our rioting.

I was thinking of that movie with Denzel Washington where the insurance company refuses to pay for his sons life saving treatment, so Denzel goes all commando die hard hostage taker on everybody. Imagine ten thousand angry parents with shotguns and pitchforks....

 

[cute fuzzy bunny]

Imagine ten thousand angry parents with shotguns and pitchforks....

Sounds like a synopsis of my life from age ~15 to ~28...

 

[Spanky]

Another way to invest using sectors is to simply put equal dollar amounts into each of the ten sectors that make up the Dow Jones Total Market Index. By rebalancing annually, you sell those sectors that have appreciated and buy more of those that have underperformed.

This sounds like a good strategy.

Vanguard has a link (http://flagship5.vanguard.com/VGApp/hnw/FundsLargeSector) about sector concentrations (or holdings) of their non-industry specific funds. The sectors are: Autos and Transportation, Consumer Discretionary and Services, Consumer Staples, Financial Services, Health Care, Integrated Oils, Materials and Processing, Technology, Utilities. It seems that there are many vanguard funds already cover the Technology, Health Care, Financial Services, and Consumer Discretionary and Services. I am surprised that they classify the REIT fund as 100% invested in financial services. That suggests that one might consider investing in Integrated Oils, Materials and Processing, Utilities and Consumer Staples.

Spanky