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Sector funds push past ETFs

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Actively-managed sector funds are lately outperforming exchange traded funds, the Wall Street Journal reports. One reason for the success is that sector funds buy small and midcap stocks, which are “usually among the first to rally in an economic recovery,” the paper writes.

Sector funds’ success could be extended if the euro continues to fall against the dollar, driving down the value of large companies with a lot of international exposure.

The funds aren’t without drawbacks, however. According to the Journal they are volatile and can be expensive. Data from Morningstar shows average annual expenses for sector funds are 1.66 percent, compared to 0.5 percent for ETFs.

What should you look for if you decide to try actively-managed sector funds?

“If you’re looking for a sector fund, you want to get a really good manager–a specialist in the area with a long-term track record, or a firm that’s really dedicated to that space,” Russel Kinnel of Morningstar Inc. told the Journal.