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A Historical Review

By Dr. David Edward Marcinko MBA, MEd, CMP™

www.CertifiedMedicalPlanner.org

[Publisher-in-Chief]

Although less than 5-10% of the total number of mutual funds are considered true sector funds, year after year, 40-50% or more of the top-performing funds have been sector funds. However, for some physician investors sold on a buy-and-hold strategy, sector funds may not be their cup of tea. But, sector funds do offer an opportunity to outperform the market indices, possibly even substantially, according to Marshall Schield in “Developing a Sector Funds Strategy” (Personal Financial Planning, November/December 1996, pp. 39–42, Warren, Gorham & Lamont, [800] 950-1205).

A Volatile Strategy

Typically sector funds are more volatile than the majority of growth funds. This volatility springs from: (1) the fact that the majority of stocks in a particular sector fund move together, thereby magnifying the fund’s movement; (2) the focus of the sector fund manager only on stocks in that sector, enabling him or her to target high potential stocks; and (3) the rotation of “in” and “out” sectors at particular times.

So – What’s a Doctor Investor to Do?

An investor in sector funds needs a strategy that will target sectors on the upswing and signal when to move out of declining funds. When selecting sector funds, Schield recommends building a list of funds that are manageable, full of choices in all types of markets, diversified (three to four funds for an aggressive portfolio or 10–12 for a less aggressive approach) and liquid.

The Balancing Act

Also, develop a healthy balance—not a “hit-or-miss” approach. Schield suggested using the “relative strength” approach for sector selection by computing the percent change in the price of funds over a certain number of days and then ranking them for short-term, intermediate, and long-term periods. With respect to determining the proper timing for buying or selling, the author suggests the use of an individual fund timing system, such as comparing the current NAV of the sector against a moving average for 50 or 75 days or combining both short- and long-term moving averages.

Simplicity Rules

In creating buy-and-sell signals:

• Keep it simple and manageable.
• Do not look for perfection.
• Practice patience.
• Cut losses and let profits run.
• Stick with your relative strength.
• Buy/sell signals consistently.

Assessment

Most of all; be prepared to spend and invest the time necessary to be successful. But, have you or your sector funds been successful in the last decade, or so? If so, which sectors? Please opine?’

Conclusion

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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

• HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
• CLINICS: http://www.crcpress.com/product/isbn/9781439879900
• ADVISORS: www.CertifiedMedicalPlanner.org
• FINANCE: Financial Planning for Physicians and Advisors
• INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
• Dictionary of Health Economics and Finance
• Dictionary of Health Information Technology and Security
• Dictionary of Health Insurance and Managed Care

Filed under: CMP Program, Financial Planning, Investing, Portfolio Management | Tagged: Dr. Marcinko, Investing, Marshall Schield, Mutual Funds, Portfolio Management, Sector funds, www.certifiedmedicalplanner.com | 4 Comments »