There was a time when you would have been hard-pressed to find a sector fund which didn’t fall into either the ‘property’ or ‘green’ categories. Over the last 18 months, though, there has been an explosion of sector fund launches - Robeco launched 10 sector funds last May in the Netherlands alone, and around 20 were launched in Luxembourg last year.
Now that exchange rates between the 11 EMU participant countries have been fixed, returns previously gained from second-guessing currency fluctuations now have to be made elsewhere, and it has been suggested that this might account for the rapid rise in popularity of sector funds.
The most popular sectors are, predictably, IT and pharmaceuticals / healthcare, but other, more esoteric areas of business are also being chosen as target sectors for funds; there are products now on the market which invest solely in food production and even Italian financial institutions. One of the more unusual among recent launches was ALSA-ADIG’s Young World, aimed at very young, first time investors. It invests in ‘youth stocks’, including Coca-Cola and Disney.
But while the notion that sector funds are a response to EMU-induced curtailments of fund managers’ investment options seems to be roundly rejected, opinions vary on how much demand there actually is for these products.
According to Liliane Visser, of Robeco, "Sector funds are not a replacement for any other types of fund. There was simply the demand for these products before EMU." And Richard Eats at Threadneedle Investment Managers, questions whether an investor with sufficient expertise to know when to move from one sector to another would even invest in a mutual fund in the first place. "I’ve seen them in and I’ve seen them out," he says, "One of the more tedious aspects of the fund industry is winding up funds which were popular a few years ago."
Whether sector funds are a passing fad or not, only time will tell. But by tradition, teenagers are the masters of the transient trend, so keep an eye on Young World – it could yet prove to be the most telling weather vane.
John Grainger is with Lipper Analytical in London