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Buying Into Sector Based Index Funds?

Discussion in 'Investing Strategies' started by Chris C, 16th Oct, 2008.

  1. Chris C

    Chris C Well-Known Member

    2nd Apr, 2008
    Brisbane, QLD
    I was just wondering if it was possible to buy into sector based index funds?

    Like for example rather than going out and buying into RIO, BHP, Zinifex, Orica, LGL, IPL etc... can you buy into an index fund based on the XMJ?

    If you can what are the pros and cons of doing this?
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    9th Jun, 2005
    Sydney, Australia
    Typically this would be handled by an ETF, but the market for ETFs here in Australia is rather immature at the moment. It will come in time.

    Pros would be exposure to a sector you think is going to outperform the wider market over your investment timeframe.

    Cons will be lower diversification than the overall market - thus potentially higher volatility.

    Specifically for resources - if you consider just how much weight shares like BHP and RIO have in the index, any sector specific index which contains them will be very top-heavy I'd think (ie lots and lots of exposure to those stocks - relatively little to the others)

    Storm have a resources index trust - which Challenger resell: Profile: Challenger - Storm Australian Resources Indexed Trust (HOW0023AU)

    ... and by comparison: Compare Funds