Did you know that in Canada alone, there are approximately 8000 mutual funds to choose from?  No firm or individual can work efficiently with that number of funds, and at You First / FundEX Invesments we ideally only utilize one percent of them.  Our job is to research, analyze and hand pick the funds that best meet the investment needs of our clients.  Going over all the research criteria would make for a fairly long article so we will focus on only one today:  sector allocation.

Sector allocation states which industries are most represented in the fund.  Fund summaries will include a breakdown of its sectors weightings as well as how this measures up against the benchmark index. A benchmark index could be the S&P/TSX Composite Index or the S & P 500 Index. One fund might have its largest concentration in health care stocks; another may have it in industrial goods stocks.  The Canadian economy is heavily reliant on banks and energy and certain Canadian equity funds will have more or less weightings in these industries.  Funds that had the largest concentrations in the financial sector last year dropped the most, but are doing much better this year.  Certain industries perform better in certain market cycles and therefore the fund allocation gives us an idea on how that fund will perform.  The technology sector is one that does well in high growth cycles, while consumer staples do better in recovery markets. 

In summary, it is important to understand which sectors are likely to out-perform and which are likely to under-perform and to choose funds accordingly.