Sector funds invest all or most of their assets in a particular industry sector such as technology, transportation, or health care. Thus, they are not as well diversified as other actively managed mutual funds or index funds that invest in a wide variety of securities from many industry sectors. Sector funds' narrow focus increases their volatility and risk (i.e., chance of loss). For this reason, many financial advisers recommend that investors should not place more than 5% to 10% of their investment portfolio in any single sector fund.
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