Best-rated Sector Funds

- Alan Lavine and Gail Liberman

Sector funds make investments in a specific industry like communications, health care, financial services, natural resources, precious metals, real estate and others.

It is better to invest, for example, in a technology sector fund rather than a single technology stock. You have professional management and an array of stocks that helps in case a couple of stocks hit the skids.

Nevertheless, investing in sector funds is a high-risk gambit. For example, sector funds that invest in communications stocks have lost 33 percent annually over the past three years.

Meanwhile, real estate stocks fund have grown at almost 14 percent annually over the past three years.

From year to year different sector funds will do well or lose a lot of money.

You need to have good reason to invest in a sector fund. Are the stocks undervalued, while earnings could grow faster in the future? The best way to find out is to read brokerage firm reports like Value Line reports, Standard & Poor's industry reports and other sources.

The other method is to use market timing to invest. Subscribe to a newsletter that tracks sector fund performance trends. That way you can get in and out based on price momentum. Websites for market timing advice include: www.bigcharts.com, www.market-timing.com and www.timing.net.Be advised: Most funds have limits on how much you can trade their sector funds.

Best-rated funds in specific sectors, according to Morningstar, include:Fidelity Select Multimedia, Mutual Financial Services, Fidelity Select Medical Equipment, T. Rowe Price New Era, Vanguard Energy, First Eagle Gold and Vanguard Gold.

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Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books).