Not according to John Bogle, the founder of Vanguard funds and the granddaddy of index investing, who is firm: "You could go your entire life without ever owning a sector fund and probably never miss it." (But despite this, Vanguard offers sector funds such as Vanguard Health Care (VGHCX) and Vanguard Energy VGENX.) Bogle's point is simply that a well-diversified portfolio doesn't need sector funds.
Let's take an example. If you owned Vanguard Total Stock Market Index (VTSMX), you'd have all of the major U.S. industries covered. The fund's portfolio would range from nearly 2.8% in real estate stocks to about 16.7% in technology as of March 31, 2011. Your other significant exposure would be almost 13.6% in financials and 13.5% in industrials. That's pretty broad diversification, so you might not need or want to invest additionally in a sector fund-especially not one focused on bank stocks or tech firms, or anything else significantly represented in the index.
Using Sector Funds to Diversify >>