Creative Commons

This study presents an overview of US equity mutual fund industry and investigates sector funds performance using the Bloomberg Database. The sample consist of 202 sector funds, from the seven most important sectors in the economy like Energy, Financials, Health Care, Industrial, Technology, Utilities and Real Estate for a period of 11 years (2003- 2010). The later was doneusing risk-adjusted performance measures such as, Sharpe and Treynor ratios and Jensen’s alpha. In addition, I investigate whether US sector funds exhibit any selectivity or market timing ability based on Treynor and Mazuy model. The main goal of the present study is to evaluate whether or not sector funds outperforms the market and the sector indexes and if funds’ managers occur any stock picking or market timing skills. I documented the following main results: First, we cannot conclude whether sector funds as a group outperform or underperform their benchmarks. Second, there is not enough evidence that they achieve significant positive or negative excess returns on average. Except for Financials sector which exhibit a quite high number of funds (56%) with significant negative alphas. Third, sector fund managers do not appear to have any significant selectivity or market timing skills. The overall impression is that even if the role of such funds is to improve the performance of an already diversified portfolio, they should not undertake a big part of client’s total portfolio, since their performance is not stable.