Choose wisely. There is only one correct answer to each question.
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1.
Which sector-fund strategy might you avoid?
Buying sector funds that are performing exceptionally well. Investors tend to buy sector funds as their performance is peaking. As a result, the average sector-fund investor doesn't do too well.
2.
A well-diversified portfolio doesn't need sector funds.
True. A well-diversified portfolio likely covers several different sectors already. But although it doesn't need them, you can still use sector funds for additional diversification.
3.
If you're investing in a long-term trend, such as buying a health-care fund to play the Aging of America theme, which should you perhaps not do?
Sell the fund if it loses money in a calendar year. To play a long-term theme, you need to be a long-term investor. If you believe in the idea, you should be buying when returns are down, or investing a little bit at a time (dollar-cost averaging) regardless of whether the fund's performance is up or down.
4.
Why would redemption fees be good for a long-term investor in a sector fund?
They are eventually paid to investors who remain in the fund. Redemption fees are paid by investors who leave the fund early, and they are paid back into the fund.
5.
Why would you want to know how diversified a sector fund is?
The fund may be highly concentrated in certain subsectors; this will affect its performance. Some subsectors are quite volatile.
