The Security and Exchange Organization of Iran says it has received requests for launching sector funds in recent months, some of which are expected to be licensed soon.
"As per regulations, sector funds can be launched for petrochemical and metals sectors. We have received several applications for launching sector funds for the metals industry and will approve some in the near future," Ali Akbar Iranshahi, the head of SEO's center for supervising investment funds was quoted as saying by SENA.
Iranshahi said that the SEO board is also contemplating establishment of sector funds for other segments of the economy.
Tehran Stock Exchange last month unveiled the first sector fund for the petrochemical industry to attract indirect investment.
Mahmoud Goudarzi, the TSE chief, said, "Sector funds are being developed to diversify investment instruments and help meet investor needs," the TSE website quoted him as saying.
The Agah Petrochemical Sector Investment Fund was created by the Tehran Stock Exchange in cooperation with Agah Portfolio Management Group and approved by the SEO, Goudarzi said. The fund is now active in the market.
Sector funds, also known as specialty funds, are mutual funds and ETFs (exchange-traded funds) that concentrate on a specific industry or market.
Sector funds give investors the option to take targeting bets on the appreciation of a potential industry category. Some sectors offer better growth potential.
Such funds can also be part of a wider portfolio plan with certain sector offering characteristics related for specific portfolio allocations.
Goudarzi said that work is underway for developing put option contracts based on sector funds. He did not elaborate.
Sector funds focus on an individual segment of the market, with no room for diversification, and depending entirely on the performance of a specific sector. The funds also offer the benefit of diversification of the portfolio through multiple holdings.
Nevertheless, overall sector funds carry individual risks that have an effect on the entire investment portfolio due to targeted sector exposure. The performance of sector funds depends on the economic cycle and performance, which depends on multiple factors.
In another update, Mohammad Reza Sarafraz Yazdi, the CEO of Agah Brokerage, said his company expects decent profit with the help of the newly-established sector fund. "We chose an important industry. The petrochemical sector has high value added and good returns.”
Majid Eshqi, the SEO head, said earlier that by unveiling sector funds the regulator seeks to promote indirect investments in the capital market.
"Many investors are focused on one sector, but at the same time they don't want to take risks. We hope the sector funds will be in the interest of investors."
