Sector funds in the new year pose a completely different kind of appeal: not for bull-market bounce, but for survival from a bear-market trounce.
A single-industry fund or two, analysts say, can provide some defense as the seven-year-old bull market limps toward some big potential pitfalls in 1998.
Stock valuations are high, turmoil in East Asia persists, and forecasters anticipate slower growth in both the economy and corporate earnings.
Most analysts aren't saying a bear market is inevitable. But the danger signs suggest investors should consider adjusting their portfolios toward the safer side, they say.
"The troubles in Asia should put a cap on [economic] growth," says Sam Stovall, sector strategist at Standard & Poor's in New York. "We are not seeing it as a meltdown right now, more of a slowdown."
Sectors that have led the equity boom look especially vulnerable.
Two high fliers have already taken a hit: Technology stocks have fallen 13 percent (see high-tech on Page B5) and oil drilling and equipment stocks have sagged 9 percent in the past three months as of Dec. 16, according to S&P.
Looking ahead, the bear bait includes airlines and makers of capital goods and textiles: Don't touch, analysts say.
So what should do well this year?
Health-care firms should stay ahead of the pack, Mr. Stovall predicts. And regional banks are a semi-safe area.
For more conservative stock investors, the workhorse utilities and real estate sectors offer promise.
But be warned: The experts aren't unanimous. Each favored industry has its skeptics.
Regional banks should draw fuel from falling interest rates and continuing consolidation through mergers.
"Regional banks should be well insulated from the Asia turmoil," says Chip Dickson, banking analyst at Salomon Brothers in New York.
Some hazards exist. They might not stand up as well as other sectors to a broad market downturn. Their stock prices are already high.
And many banks, like corporations everywhere, have inadequately addressed the potentially crippling "year 2000" software crash. Many of today's computers are improperly formatted for the date change to a new millennium.
Still, the sector's long-term record is outstanding and continued mergers and enhanced efficiencies could keep the gravy train rolling.
Over the past decade, Fidelity Select Regional Banks Fund has generated annualized returns of 26 percent. John Hancock Regional Bank B has jumped 25.7 percent a year.
John Klosterman, a financial adviser in Minneapolis, is partial to John Hancock because of its shrewd plays on Midwest banking stocks. "It has consistently been in the right place at the right time," he says.
A safer but perhaps less lucrative industry is utilities. The steady sector has underperformed the broad market for years, in part because of concern about turmoil from industry deregulation.
Electric-power stocks generally sell cheaper than the market average.
"They have underperformed so much and they are still relatively inexpensive," says Douglas Fischer, senior utility analyst at A.G. Edwards in St. Louis.
Also, even though deregulation is far from over, the down side of such sweeping change "has been digested in stock prices over the past few years," he says.
Falling interest rates, meanwhile, make high utility dividends look all the more attractive. But many utilities are reducing dividends as competition rises and they focus more on expansion.
"Today in utilities you should not buy them just for current yield but with total return in mind too," Mr. Fischer says.
Although defense with a big "D" is the watchword among sector analysts, they say investors shouldn't slam the door on volatile sectors with plenty of vim.
High-tech stocks have faltered recently (see tech troubles, Page B5), but "the market could be providing us a good buying opportunity for long-term investors," Stovall says.