But others warn that shareholders could end up underwater

With so much stock market volatility these days, some fund experts suggest investors should relax, take a deep breath and invest in a leisure fund.

It may not be as therapeutic as a trip to the beach, but investing in a fund that holds hotels, resorts and cruise lines can work wonders for your wallet in this market.

Year-to-date as of May 14, at least four funds investing in the leisure industry were in positive territory, well above the Standard & Poor’s 500 stock index.

But some advisers say that while the funds are performing well, they are leery of investing in them simply because they are niche funds. They say they don’t see how the funds can continue to do well if the market continues to slide, and people cut back on discretionary spending.

Whether people cut back their spending, however, is not a major concern for leisure funds, say at least two portfolio managers. While they admit leisure companies are affected by macroeconomic trends, they claim they are insulated to some extent, and for the most part determine their own futures.

Derek Rollingson, an assistant portfolio manager with the $69 million Icon Leisure and Consumer Staples Fund, offered by Meridian Investment Management in Englewood, Colo., says a good way to think about it is to consider what happens with regard to restaurants in a volatile economy.

“If you think about restaurants, there is a group of people who go to expensive restaurants, and they just kind of slide down the food chain,” Mr. Rollingson says. “Instead of having a $50 plate, they may have a $20 plate instead, and people who have $25 plates may decide to have $15 plates instead.”

Mark Greenberg, a senior vice president with the Invesco Funds Group in Denver and the portfolio manager of the $646 million Invesco Leisure Fund, uses a similar analogy involving toy stores.

“Surprisingly enough, many toy sales are not as connected with the economy as you would think,” Mr. Greenberg says. “If your kid’s going to a birthday party, you’re still going to bring a present for his classmate. Maybe you spend $8 instead of $9 or $10, but you’re still going to buy the stuff.”

And an American Express Co. survey released last week indicates that the slowdown hasn’t dampened enthusiasm among summer leisure travelers. Of respondents, 59% said they plan to go on vacation about the same amount this year as last, 23% said they would travel more, and 18% said they would travel less. And 44% said they expect to spend more on their vacations, compared with 15% who said they expect to spend less.

Such examples help to explain why leisure funds are doing well. Year-to-date as of last Monday, the Icon fund was up 5.42%, and the Invesco fund was up 10.08%, according to Morningstar Inc. in Chicago. The $265 million Fidelity Specialty Leisure Fund, from Fidelity Investments in Boston, was up 10.98%, and the $21 million Rydex Leisure Fund, from Rydex Funds in Rockville, Md., was up 7.93%.

Those numbers are impressive compared with the S&P 500, which was down 5.04% year-to-date, but what about the long term?

For the most part, leisure funds have good long-term track records. The fund with the best long-term record, however, was the Invesco Leisure Fund.

Annualized returns as of May 14 show that fund with the second best one-year return (12.04%) but the best three-year (23.67%) and five-year (21.83%) returns, according to Morningstar. That beats the S&P 500’s one-year return (-11.08%), three-year return (5.11%) and five-year return (15.15%).

Mr. Greenberg says the key to his success is good stock picking. Of the top 10 stocks in his portfolio, none are in negative territory.

Harrah’s Entertainment Inc. (HET) in Las Vegas is his biggest holding. The casino operator was up 34.29% May 14, according to Morningstar. Mattel Inc. (MAT) in El Segundo, Calif., is his second-largest holding. The toy maker was up 12.67%. His third-largest holding, Liberty Media Group (LMG.A) in Englewood, Colo., was up 18.93%.

Mr. Greenberg says that in many cases he’s just picking the winners within particular industries.

For example, in the casino group, Harrah’s was doing better than most. Park Place Entertainment (PPE) was down 0.32%, MGM Mirage (MGG) was up 10.15%, and the Mandalay Resort Group (MBG) was up 14.32%, according to Morningstar. All are based in Las Vegas.

Despite good long-term performance – at least with regard to the Invesco Leisure Fund – many financial advisers say they’re wary of investing in such funds because sector investing can be problematic.

“I don’t think it’s a good idea,” says Jeff Feldman, an adviser with Rochester (N.Y.) Financial Services. “When it comes to sector funds, usually you see a fund that’s doing well, and as soon as you get in, that run of doing well is over. If I were to buy a leisure fund for a client now, and then it was to drop 20%, a client could come to me and say, `Why the heck did you get into leisure funds, especially when the economy is slowing down?”‘

Thomas Grzymala, president of Alexandria (Va.) Financial Associates, disagrees. He says he believes people are still spending money even though the economy is slowing down, and that can only help leisure funds.

“There’s a lot of cash sitting on the sidelines, and I think people are still very comfortable with what’s going on in the economy,” Mr. Grzymala says. “So I think [leisure] funds are good choices for a very small part of one’s portfolio.”

Mr. Grzymala says, however, that investors interested in such funds should carefully watch consumer confidence and retail spending. The moment they show signs of weakness, he suggests, may be the signal that leisure funds will have gotten off the beach and into trouble.