Did you miss the rally in gold, IT, Pharma funds? Here is what to do

Many mutual fund investors are concerned that they have missed (or missing) the rallies in various mutual fund categories. Just look at the return chart and you would know what they are talking about.

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Many mutual fund investors are concerned that they have missed (or missing) the rallies in various mutual fund categories. Just look at the return chart and you would know what they are talking about. Three mutual fund categories – pharma, IT, and gold – have given phenomenal returns in the last one year. However, since most regular investors do not invest in sectors funds like pharma and IT, they would have missed the rally in these sectors. Similarly, only a few investors diversify into gold to benefit from the fanatic rally in the yellow metal.

According to Value Research, a mutual fund tracking firm, pharma category has given an average return of 63% in the last one year. IT fund category has given around 38% and gold funds have given an average return of around 28% n the last year. The toppers in these categories have given astounding returns during the same period. No wonder, many mutual fund investors are feeling left out.

Mutual fund advisors say many investors are disappointed that they missed an opportunity to make some extra money during the bleak Covid period. Several mutual fund advisors say they have been getting calls from their clients, including seasoned investors, to discuss the possibility of investing in some of these `hot sector funds.’

Okay, first things first. You do not have to beat yourself that you missed the rally in pharma and IT sectors completely. You would not have missed it completely if you have been investing in various equity mutual fund categories for a while. Almost all good performers in the equity category would have meaningful exposure to these sectors.

For example, look at Parag Parikh Tax Saver Fund, one of the top performers in the tax saving mutual fund category. The scheme has around 25% investments in the IT Sector. It also has a small exposure of around 6% in the healthcare sector. Axis Long Term Equity Fund, another topper in the category, has around 11.83% exposure to IT sector. It also has around 8% exposure to healthcare. You can look at the portfolio composition of your schemes to reassure you that you have not missed the rally completely.
Gold is the only exception. Since most equity mutual funds do not invest in gold, you would have missed the rally in gold if you have not invested in a gold fund or multi asset fund.

That brings us to the big question of changing your asset allocation strategy to include these hot sectors to benefit from the Covid situation. It is true that many of us were stunned to see gold prices reaching the sky during the initial days of Covid-led lockdown across the world. The next was the turn of IT sector that suddenly became one of the resilient sectors during this fragile period. In the last few months, pharma sector has been in the spotlight.

It seems, these three sectors are likely to remain the favourite of investors as long as the virus remains active around the globe. As you know, the importance of IT sector to continue with our personal and professional during these bleak times cannot be overstated. Similarly, healthcare sector would continue to be in spotlight with all the talk about an imminent breakthrough in Covid vaccination. Of course, gold would continue to shine as long as there are uncertainties in the global economy.

Now, should change your allocation based on the current environment? Think of it, these sectors may lose their eminence once the threat of virus fades from the world. That can happen in a year or two.

If you are still determined to go ahead, remember the rules remain the same when it comes to investing in sectors. One, you be knowledgeable about the sector. This will help you to get out before it is too late.
Sectors can be cyclical. Once they hit a rough pocket, it will take a while for them to recover. Two, be prepared for extra risk and volatility. Unless you are ready to go through the pain of waiting for the recovery, you may not make lot of money from investing in sectors.
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