Which fund invests in stocks from a single sector or industry?

• A. Sector Fund
• B. Index Fund
• C. Balanced Fund
• D. Asset Allocation Fund

Answer: (A)

Focusing investments in a single industry is what this question is testing. A sector fund is designed to invest primarily in companies within one specific sector, such as technology, healthcare, or energy. Because of that concentration, the fund’s performance tends to move with that sector’s fortunes—offering the potential for strong gains when the sector does well, but also greater risk if the sector underperforms. This makes it more volatile and less diversified than funds that spread investments across many sectors.

The other options aren’t about single-sector focus. An index fund aims to track a market index, which can be broad or sector-specific, but isn’t defined by concentrating in one sector. A balanced fund mixes stocks and bonds to provide overall balance, not sector concentration. An asset allocation fund spreads across multiple asset classes and rebalances, further reducing sector concentration.