What is the best sector to be in ?

If you are an aggressive investor, or are you a prudent investor? Whatever you think you are, you are certainly won't wish to lose your money.

Most investors are risk adverse, meaning that they won't the biggest amount of return that can be obtained for the lowest amount of risk. Investment returns can be driven from a style approach, top-down asset allocation or bottom-up stock picking and sector allocation falls into a top down strategy.

Selecting one sector can be particularly risky, in effect you are placing all your eggs in one particular basket, and if that particularly sector is one which is sensitive to interest rates, oil price movements or consumer confidence, having no diversification can prove costly.

The best thing to suggest is to have a sector mix. A group of sectors that you believe are diversified enough to minimize risk, but exposed to the right factors that are believed to be on an upward trend.

Currently a sector who has been largely undervalued and believed to soon recover is the telecommunications sector. Much loved in the late nineties. Telecom shares rode on the coat tails of the internet and technology boom. A raft of new start ups to compete with BT and a variety of mobile phone operators that were increasing in popularity. However, increasing competition bought declining margins. Mobile phone operators had to give big subsidies to phone retail outlets to offer cheap deals on the 12 month contracts, and the biggest deflator to the telecom industry was the bidding for the 3G licenses.

The amount the 3G licenses auction process rose for the licenses shocked many analysts. Many believed that the mobile phone companies had vastly overpaid, for what was at that point technology in its infancy. However years on, 3G is just starting to properly go to fruition. The biggest news for the market was released at the beginning of September when Apple launched a partnership with Motorola for its first ITunes phone. Sony has also launched a competition phone in its Walkman brand, and therefore new demand is expected to drive the market.

Telecom shares have also been buoyed by expectation of consolidation in the sector. Recently O2 came under scrutiny with analysts believing that there was a string possibility of a bid from Deutsche Telekom. A takeover will probably further kick-on the recent gains experienced in the sector, but the key maybe Vodafone.

Vodafone, a particularly large share in the FTSE100 has recently encouraged analysts with it sales growth and development prospects. Key will be the analyst presentation at the mid to end of September. A strong showing here, and market consolidation, could maybe see the sector kick on.