Final answer:
A specialty fund aims to invest in particular geographic areas or industry sectors. Unlike index funds, which track broad market indices, specialty funds provide focused exposure to niche segments, like a country or a specific sector, for diversification and growth potential.
Step-by-step explanation:
A "specialty" fund is one that invests in one geographic area or one type of industry. These mutual funds focus on specific segments such as company stocks based in a single country (e.g., Indonesia), bonds from a particular kind of company (such as large manufacturing firms), or sectors like biotechnology. The ultimate objective of a specialty fund is to offer investors exposure to selected markets or industries, typically for the sake of diversification, high growth potential, or both.
On the other side of the spectrum are index funds, which seek to imitate the overall performance of a market index and represent a broad market approach. These funds invest in a tiny share of almost every firm listed on the stock market, which means that the value of such a fund fluctuates with the market's average.
Investing in specialized sectors or regions is riskier than broad-market investments because diversification tends to mitigate the extremes of value fluctuations. Hence, investors aiming for diversification may choose a balanced approach that includes both specialty and index funds as part of their investment strategy.