These funds invest in securities of a specific industry or sector of the economy such as health care, high technology, leisure, utilities or precious metals.

Because such funds invest primarily in one sector, they do not offer the element of downside risk protection found in mutual funds that invest in a broad range of industries. However, the funds do enable investors to diversify holdings among many companies within an industry, which is a more conservative approach than investing directly in one particular company.

Sector funds offer the opportunity for sharp capital gains in cases where the fund's industry is "in favor" but also entail the risk of capital losses when the industry is out of favor.

While sector funds restrict holdings to a particular industry, other specialty funds such as index funds give investors a broadly-diversified portfolio and attempt to mirror the performance of various market averages. Index funds generally buy shares in all of the companies composing the S&P 500 Stock Index or other broad stock market indices.

Asset allocation funds move funds among a variety of markets and instruments in response to the fund manager's view of relative market prospects. They are broadly diversified and sometimes have higher management fees since there may be a variety of securities in the portfolio. These funds are suitable for investors who can tolerate a moderate to high degree of risk, are seeking capital appreciation and to whom dividend income is secondary in importance. And whatever the instruments, social responsibility funds apply moral and ethical as well as economic principles in the selection of securities.