Technology and financial mutual funds make a good combination for your portfolio because financial stocks often do well when value investing is in style while technology stocks stand out during growth-oriented market cycles. In 2000, market leadership switched from technology to financial stocks.
To reduce risk in technology funds, choose a fund that has more than one manager. It’s very hard for one person to keep up with everything that’s happening in technology.
Among financial funds, look for established funds with a sizable stake in small to mid-sized banks. If there are more mergers in the U.S. banking industry, which analysts expect, smaller banks may be acquired. In such cases, shareholders often receive a 40%-50% premium over the former
trading price.
What about health care funds? Again, broadly-diversified funds are less risky than specialized biotech funds. If you want to invest strictly in biotech, consider H&Q Healthcare Investors or H&Q Life Sciences Investors. These are closed-end funds sponsored by Hambrecht & Quist, a firm with a great deal of expertise in this area, and they often trade at steep discounts to the value of the stocks they own.