Mutual funds can offer a simplified approach to portfolio diversification. When you buy a mutual fund or exchange-traded fund (ETF), you can own a collection of investments rather than having to purchase individual stocks. Sector funds are a type of mutual fund or ETF that targets individual market sectors or industries. These funds are a more specialized option for investors who want to gain exposure to a specific grouping of companies or areas of the economy. Investing in sector funds starts with understanding how they work and what they can add to your portfolio.