Morningstar Inc., Chicago, lists eight categories of “specialty” funds that concentrate on a particular sector of the stock market. How have they performed?
Health care funds led all categories in 10-year returns, through the first quarter of 2003, gaining 12.5 percent per year.
Funds holding financial services companies had the second-best record for the decade, gaining nearly 11 percent a year. These funds even have a slight (2.35 percent) gain for the three-year bear market.
Technology funds, despite horrendous losses for the past three years, posted total returns over 8 percent a year, for the decade.
Precious metals funds, which invest largely in gold stocks, had the best bear market record, gaining 18.5 percent a year for the past three years. Their prior record was so dismal, though, that they barely broke even for the decade.
Real estate funds were the most consistent of all categories, gaining 12.5 percent a year for the past three years and 7.4 percent for the decade.
Natural resources funds went up and down with oil prices, finishing with a similar 7.4 percent annual gain for the decade.
The other two categories, communications and utilities funds, had wretched bear markets and poor 10-year returns (each gained around 4.5 percent), perhaps because many utilities funds have invested in telecommunications companies.
After looking at these results, you might want to include health care and financial sector funds in your portfolio, for long-term performance, and real estate funds, which have proven they can hold up in during a bear market.