Sector investing means investing in a particular sector. Sector can be a group of companies having similar characteristics.

Like television comprises one sector and like that car comprises another sector. Companies manufacturing the products fall in the sector comprising similar characteristics. Companies within the sectors compete with one another.


The Investor selects a particular sector according to his/her interest and within that sector investor invests in a company, which investor finds profitable. There are also broader investment sectors having interest rate sensitive companies including banks, house builders and heavy capital equipment manufacturers.

In sector investing some sectors and industries tend to perform better than other sectors and industries at certain stage of economic cycle, so for identifying a successful investing sector individual needs to identify which sector of the economy is progressing and which sector of the economy is not doing well.

Sector investing is also known as top down investment approach. One way to enter in sector investing is through sector mutual funds. Sector mutual fund offer diversified exposure to distinct market segments, removing the risk of picking individual stocks.

Advantages and disadvantages

There are some advantages and disadvantages attached with sector investing. Sector investing can mean big reward to an investor but choosing a right sector for investment at right time is a difficult task. Sector investing can be a good way to invest without the risk of individual stock selection.

The best benefit of sector investing is that it offers highest rate of returns. Selecting the sectors for investing which have performed best in the past time in the current economic conditions. Sector investing provides an individual an edge over investors who concentrate wholly on bottom up investment.

Sector investing means that individual’s returns are to an extent dependent on individual’s skills. On the other hand there are few disadvantages of sector investing and they are: – sector investing is not a good choice for relaxed investors. If an individual investor does not accurately study the conditions then he/she may have to suffer heavy losses.

This loss can be greater then the whole loss suffered by the market. Market fluctuation is very high, so there’s a possibility that previous years leading sector may be at the worst position this year and for this reason sector investing is obviously not for relaxed investor with the attitude of buy it and forget it.

Danger to sector investing is that some investment firms can take advantage of investors by advertising their best-performing categories, encouraging investors to switch from the laggard to the leader.

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