Funds Intermediate: Sector-Fund Investing

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1.
Why would you want to know how diversified a sector fund is?
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The fund may be highly concentrated in certain subsectors; this will affect its performance. Some subsectors are quite volatile.
2.
A well-diversified portfolio doesn't need sector funds.
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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.
What costs are actually good for long-term sector-fund investors?
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Redemption fees. Redemption fees discourage short-term traders from buying a sector fund and are paid back into the fund--in other words, they are paid back to investors who remain in the fund. And if you are a long-term investor, you'll never have to pay these fees.
4.
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?
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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.
5.
If you want to use sector funds to invest in a long-term trend, what strategy would be wise to use?
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Dollar cost averaging. This is an effective way to get into a trend slowly and carefully, especially if you are fairly new at it.