Sectoral Investing – An Optimal Route To Leverage Market Opportunities

“Given a 10 percent chance of a 100 times payoff, you should take that bet every time,” said Amazon’s Executive Chairman Jeff Bezos. While the quote can be considered as a call for people to take more informed bets in life, it is especially relevant when considering the stock market.

Sectoral Investments Pick Up Pace

Investors always have one singular focus – to park their funds in assets that offer high returns, without posing too much risk. With the recent market volatility, many experts have offered insights on sectors that would do well in the medium- to long-term, including defense, auto, industrials, etc. However, what exactly does sector investing mean and what are the advantages of this strategy? Sectoral investing implies an investment strategy wherein you choose a particular sector or industry, be it FMCG, IT, pharmaceuticals, or metals, among many others, and park your funds in companies that belong to the sector, in the belief that the said sector will offer high returns in the future.

Being invested in the right set of sectors, at the right time, is of great advantage. For instance, when technology began to make an appearance several years ago, many investors were wary of the sector. However, early movers who invested in top IT companies ended up reaping rich rewards for their foresight, indicating the enormous potential inherent in sectoral investing. Now, if you are keen on sector investing, you would also need to spend a certain amount of time tracking the market and the overall economy to identify the upcoming trends and make relevant decisions. Identifying sectors with untapped potential and ensuring the early-mover advantage are two ways of gaining huge returns on sectoral investments. You should have a strong understanding of the viable entry and exit points to ensure that you end up with a winning portfolio because, when it comes to sectoral investing, timing is paramount.

Putting the Best Foot Forward

So how should you go about leveraging sector investing opportunities? If you are an experienced investor with a keen interest in market movements, you can easily pick and choose the sectors that would work best, based on your convictions and market trends. Alternatively, if you are not interested in tracking the market or identifying the best sectors to invest in, you can enlist the help of an advisor and create a curated portfolio based on their suggestions. This can be done as a retail investor, and you can build positions in the sectors of your choice.

Another great option for you, when it comes to sectoral investing, is to opt for the mutual fund route, wherein you can rely on the expertise and professional acumen of fund managers who will take the decisions when it comes to optimally invest your money. All you have to do is pick a fund house of your choice and take a look at the different sectoral funds being offered. You can go through the attached rationale behind the scheme and get a better understanding of why the fund house is positive in certain sectors. Once you find a sector that meets your investor profile and risk appetite, while being aligned with your outlook on the economy, you can go ahead and start investing in the fund. One of the major benefits of investing in sectoral funds is that you can gain exposure to multiple companies in the sector, without actually needing to spend huge amounts on purchasing the shares of all the companies.

The third option that investors can consider is investing through the fund of fund route. For example: In the case of an offering like a thematic advantage fund, the fund manager has the flexibility to invest in a handful of sectors, and depending on the changing macros and sector outlook, the constituents of the scheme will change. In this manner, the investor will not have to worry about being invested in the right sector at all times as the fund managers will be doing the needful.

In effect, if you are certain about a particular sector and its outlook, then sectoral investing can be very rewarding. But do remember getting the entry and exit point right matters. In case you are uncertain then allow the fund managers to help you by investing through the mutual fund route.

The views are personal and are not part of the Outlook Money editorial Feature