From the September 2009 issue of Boomer Market Advisor • Subscribe!

Stimulus for energy, infrastructure ... and retirement

Boomer investors can be happy with broad-based market exposure, but for those looking for something more exciting, sector funds can fit the bill. From the beaten up financial sector, to the potential windfall for the infrastructure industry, or the benefits that renewable energy could see in the future, there are a variety of funds to target specific sectors (both in and out of favor) of clients' choosing.

Obviously, the financial sector is receiving significant attention. Adequate exposure could come through a large-cap value fund, which would add diversification to other sectors. But there are those clients who want a mutual fund focused solely on this sector. From funds such as the John Hancock Regional Bank Fund that look to capitalize on the mergers and acquisitions in the regional bank space, to industry-specific funds such as Fidelity Select Banking, Fidelity Select Brokerage & Investment and Fidelity Select Insurance, investors can target specific strategies within the sector.

Infrastructure is also receiving attention. Mutual funds in this sector tend to be global and fall into Morningstar's World Stock category, however most have less than a three-year track record. Two of the funds with the longest track records are the Morgan Stanley Global Infrastructure Fund and the Cohen & Steers Global Infrastructure Fund, but both were utility funds until mid-2008 when their mandates were expanded.

Aside from these two funds, Morningstar only lists four other global infrastructure funds, so to expand the peer group, one could consider looking at utility funds since a diversified utility fund would capture a majority of the same universe used by infrastructure funds. The MFS Utilities Fund is one that takes a broad view of the utility space including both traditional electric utilities as well as water, telecommunication and media companies. However, this fund does not have exposure to many of the construction-related names, which could be the biggest beneficiaries of stimulus spending. Another option is the Franklin Utilities Fund, which tends to be more conservative, mostly investing in domestic regulated utility companies. While its conservative nature helped it during the downturn, it would be a stretch to compare it to global infrastructure funds. But for conservative clients looking for exposure to the utilities sector, this one is worth a look.

Economists believe the price of oil will recover with the global economy. With growing demand for energy, renewable energy sources will be key. A challenge for this space has been the types of companies in which alternative energy funds could invest.

Two completely different types of companies are in large part meeting the demand for alternative energy. The first are traditional energy companies that have opened separate divisions for renewable energy. The second are smaller companies that specialize in making the devices or parts for the devices that harvest these energy sources. As alternative energy funds cannot invest in the traditional energy companies, they tend to lean toward the small- to mid-cap space.

Two open-end funds that provide a high level of exposure to the alternative energy space are the Allianz RCM Global Eco Trends Fund and the Calvert Global Alternative Energy Fund. While the Calvert fund focuses solely on alternative energy, the Allianz fund incorporates pollution control and clean water companies. Another similar fund is the DWS Climate Change Fund, whose objective is to invest in companies engaged in activities related to climate change.

While a client's investment goals and risk tolerance should drive recommendations, these are sectors that may pique a client's interest. From financials to infrastructure to alternative energy, targeting these sectors through mutual funds has become an option clients may not know exists.

Andy Gotfried is director of Raymond James mutual fund research and marketing.

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