Although the market overall has been doused by subprime loans, individual mutual funds aren’t likely to have much exposure to the volatile sector, the Associated Press reports.
Most sub-prime lenders are small-cap companies, and, as such, funds won’t have large amounts of cash invested in them. In addition, most mutual funds are diversified.
“Diversity is what saves you from an event like this,” said Jeff Tjornehoj, senior analyst with
Harry Clark, president of
To be invested in home finance, Tjornehoj continued, “is extremely sector-specific. It’s almost like you’re overweighting in subsectors. If you are that invested in a sector, you darn well better keep your eye on the ball at all times.”
However, Andrew Gunter, an analyst with Morningstar, said the steep decline in subprime loan stocks, and its overall detrimental effect on the market, could cause a temporary run on a wide range of lending and homebuilding stocks.
“It might be a case of throwing out the baby with the bath water,” Gunter said. “[Investors’] worries about subprime lenders might have been overblown. This is the kind of thing that happens with an industry-specific fund. It can be subject to the whim of what’s out there. It can get clobbered because it’s not diversified."
