SPECIALIZED FUNDS

Specialized funds limit their holdings to securities in one industry. They may choose industries such as health care, the automobile industry, biotechnology, or pharmaceuticals. To be classified as a specialty fund, a fund must put at least 25 percent of its money into one industry.

When a few companies in an industry perform poorly, others may be affected. Trends in an industry often cut across company lines. That has happened in the past few years with Internet stocks. This disadvantage may bring down much of the value of the fund. On the other hand, certain industries will outperform the market as a whole.

Advisors often suggest that investors interested in specialized funds know the sectors they are choosing.

Specialized funds are also called sector funds. They are considered by many to be aggressive-growth.

Now let's look at funds that invest in bonds.