Specialty funds focus narrowly, sometimes profitably
When it comes to mutual funds, there's a specialty fund for almost every taste.
Want to help animals? There's an animal rights fund. Want to invest in nursing homes? There's a fund dealing with the elderly. Russia enthusiasts can invest in this year's top-performing fund, the Lexington Troika-Dialog Russia Fund. Even astrologers will soon have their own fund, now pending approval by the US Securities and Exchange Commission.
Specialty mutual funds target a particular product, geographic region, or group of people. Investing in them can be educational, fun, and emotionally rewarding.
And as you can see by the Russia fund, such investing can also be financially rewarding.
But unless your investment is based on solid underlying economic fundamentals, such as the turnaround that some economists see in Russia, the returns on specialty funds can be far from special, experts say.
Moreover, specialty funds can be highly volatile and frequently fail to stay in the race.
Case in point: The Sports Fund opened with substantial media hype last summer.
Targeted at sports fans, the fund invested in companies linked to athletic pursuits. But investors remained wary: Assets reached only about $500,000. And total returns were not exactly slam-dunk spectacular. The fund consistently underperformed the Standard & Poor's 500 stock index.
It was sent to the locker room earlier this year.
"Many specialty funds are interesting to talk about, but if you are a serious investor, you really have to ask yourself why you are invested in one in the first place," says Cebra Graves, an analyst at Morningstar Inc. in Chicago. "Many of these funds deserve no serious attention."
"Often [specialty] funds represent a marketing gimmick," says Maria Crawford Scott, editor of financial publications at the American Association of Individual Investors in Chicago.
"You have to wonder what kind of financial resources" such funds and their management companies put into basic research and analysis, she adds.