“Many investors are noticing that sector or thematic schemes are the top losers in one year. More than the single-digit losses, investors are noticing that several sector or thematic schemes are losing money. That is what makes them nervous,” says a mutual fund manager. Many investors, especially the new investors, got into these schemes during the Covid years because they were offering great returns. Many investment experts were also speaking about how these sectors were becoming robust because of the particular situation at that time.
Many mutual fund experts were of the view that technology funds and pharma funds are likely to remain hot favourites for a long time. They argued that since the world was moving towards remote work and online services, IT spends are likely to increase multifold. They believed that IT funds are likely to benefit because of that. Many mutual fund managers were also bullish on the pharmaceutical sector. They believed that since covid is likely to linger a very long time, pharma funds may benefit in the years to come. However, such simple logic did not play out in the market.
The world economy is facing runaway inflation and central banks has been resorting to steeper rate hikes to tame inflation. Slower economic growth ( and possibly a recession) has changed the contours of the market. The stock market is likely to remain under pressure for sometime, say mutual fund managers. They believe that till there is clear direction the market may move in a tight range and concentrated bets in sectors or themes may suffer during this phase.
Mutual fund advisors always ask regular investors to stay away from sector or thematic funds. They say that sectors and themes would find favour or fall out of favour in different phases in the market. That is why it is extremely important to time the entry and exit in sector and thematic schemes. Individual investors, especially new investors, would find it extremely difficult to execute. That is why these advisors ask investors to use a flexi cap scheme to bet on sectors and themes that are in fashion. They reason that a good flexi cap scheme may have investments in sectors and themes that are doing well. If you insist on investing in sector schemes, they ask you to limit your investments to 5-10% of the total portfolio.
