This study examines the performance of U.S. equity mutual funds focused in well-defined economic sectors and compares them with diversified equity funds. Findings show that sector funds are indeed less diversified than other types of funds but still do not exhibit higher systematic risk. They do, however, have higher total risk. They also charge higher expenses which are not justified by increased net performance. There is not enough proof that they achieve significant positive or negative excess returns on average. Exceptions hold for energy and industrials sector funds, which demonstrate remarkable net and excess returns. Sector fund managers also do not appear to have market timing skills. Results claim that sector funds on average are a risky, yet not worthy investment on their own, but could be included in diversified portfolios.
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