We have come a long way in investing. It used to be there were just "stock" funds and "bond" funds. Now we can buy slices of the market in many different flavors. We can choose if we want those slices indexed or managed.
I have been a fan of energy and natural resource investing. It is a way of investing in commodities but by owning the companies that produce them rather than the commodities themselves. My investments in energy and natural resources for the most part of worked out really good for me. The one or two clunkers didn't hurt me much at all.
So I can see a great appeal to owning an energy sector fund or a good natural resource fund. I would see this as owning another asset class.
It really comes down to investment philosophy and taste. Most investors are best served by investing in the broad markets rather than picking sectors.
The problem with sector investing is that the economy changes over time. For example, the financial sector used to be a no brainer. These stocks tended to pay nice dividends and had a bit lower P/E's than the market as a whole. These tended to be very profitable companies. The Davis family (Shelby and Chris) largely built their careers as investment managers on the financial sector. After the AIG debacle and the collapse of Lehman Brothers, we learned that this sector is a lot riskier than what we had perceived.
Ditto with energy. Oil Stocks used to be a no-brainer. As Oil gets harder to find, the risks of getting it out of the ground are greater. Another poster brilliantly pointed out B-P's troubles. I am not sure that the large multi-national oil companies are as safe as perceived.
I also own REIT funds, which are basically sector funds. These have shown some incredible volatility, going up or down 8-10% in one day!! Profitable but risky. These used to be a value story, but now I see these listed as mid-cap growth rather than mid-cap value. So the secret is out!! A lot of folks are buying these.
So I am thinking that for most folks, they ought to think in term of the broad indexes. There is a lot of risk in the sector funds. I have been rethinking my philosophies on these investments.
A fool and his money are good for business.