GP vs. Specialist: When to choose

In the recent months I looked at hospitals more closely than I had over the past many years. My mother had a bypass, and before that an attack of pneumonia. The usual tests and more tests had to be conducted before the treatment. Sitting in hospitals made me think of sickness, insurance, old age, healthy body, and a myriad of other issues including the method of treatment.

Some thoughts...

The medical field has made tremendous advance in diagnosis and treatment. I have no doubt on that, but I never found a holistic approach or a complete answer. Specialists are good, but limited in terms of offering holistic solutions. I missed my family general practitioner (GP) in these times. Many years ago a kind and well known GP, and who is presently unwell, told me that GPs can diagnose better, as they have knowledge of cross connections between different parts of the body. A specialist may offer good solutions for a problem but cannot offer any views of its likely impact on other parts of the body.

The biggest downside to visiting specialists was that you had to visit two or more specialists, coordinate their timing and make them speak to each other. I couldn’t help imagining a situation in future when the specialisation could go deeper. What if Dr Karia (name assumed) says that she could only check the left eye and for any problem with the right eye I had to visit Dr Maria (name assumed)! There could be a doctor for each finger but no one for the entire palm!

Well, we have fewer choices in these matters barring trying to maintain good health.

Linking this to my world of investments, I thought of sector funds and their role. Sector funds were like the specialists. In the last few “Path to Profit” events, some investors asked if we would launch sector funds.

My answer has been that in a country like India where almost every product is under-penetrated and that offers huge potential to invest and earn long term returns, the role of sector funds may be limited. The following are the disadvantages:

1. The number of listed companies in a sector may be limited- this reduces the diversification benefits in that sector.
2. There may not be many good managements in the sector- limits the choice of investments, forced to invest in companies with bad managements.
3. If the sector does not do well due to one macro sector specific issue, then the entire portfolio is adversely impacted- e.g the stocks in the power sector affected by issues relating to coal.
4. Size and liquidity of the companies in the sector may limit the construction of an efficient portfolio.

For a sophisticated investor, who has a well diversified portfolio, and looking to add exposure to a particular sector after being fully aware of the risks- a sector fund may be useful addition.

However for an investor who is not well versed with the risk of owning a sector fund, it is advisable to invest only in a diversified fund. In any case if a particular sector is attractive in terms of growth prospects and valuations then these stocks would find a place in the diversified fund. The investor in the diversified fund therefore gets the benefit of the sector and also faces lower risks.

Therefore do your research; consult a good financial advisor before taking any major investment related decision.

Above article is authored by Quantum.

View All