A new mutual fund plans to combine two previously independent investing strategies- momentum investing and sector funds.
T.O. Richardson Co., a Farmington, Conn. investment advisory firm, is offering an aggressive growth fund which rotates its assets among more than 50 sectors based on the projected investment performance of the sectors. Unlike traditional sector funds, which stay within a particular investment category such as financial services or technology, the T.O. Richardson Sector Rotation Fund will invest assets in whatever sectors are likely to prosper. The fund can invest in more than one sector at a time.
The firm says the new no-load fund, which T.O. Richardson officials introduced Monday, is the first of its kind.
Generally, the fund will remain in a sector for three or four months, says Sam Bailey, president of T.O. Richards. Annual portfolio turnover will be 200 to 300 percent, he said. T.O. Richardson has used the strategy in private accounts since 1995, Bailey said.
The sector rotation fund may be able to attract assets if it performs well, according to Financial Research Corp., a fund consulting firm in Boston. The firm said in a report last week that performance has driven sales for sector funds.
"Investors who are searching for the hot category' invest in these funds," FRC said.
Tom Tyson, an FRC analyst, said sector funds held approximately $116 billion, or 4.3 percent of the equity fund market through November, 1998. As a group, sector funds had $5.4 billion in sales through November, about 3.8 percent of net equity sales.
If T.O. Richardson "can deliver the returns, they may see some money," Tyson said.
Tyson warned, however, that the returns would need to surpass those of other sector funds with more well-known brand names. He also said the do-it-yourself nature of typical sector fund investors and financial planners may work against the sector rotation fund's strategy.
T.O. Richardson has approximately $250 million in assets under management and has been in business for 32 years. This marks the first mutual fund which the company is advising.