Most funds diversify their holdings by buying a wide variety of
investments that correspond to their category. A typical stock
fund, for example, might own stocks in 100 or more companies
providing a range of different products and services. The charm of
diversity is that losses on some stocks will often be offset - or
even outweighed - by the gains on others.
On the other hand, some funds are extremely focused. For
example:
- Sector Funds buy shares in a particular
industry, such as healthcare, technology or utilities.
- High-Yield Bond Funds buy risky bonds to
produce high income.