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3 Communication Services Funds to Buy as the Sector Remains Solid
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Communication Services did quite well in 2023, ending just behind the broader tech sector that it is part of. However, as of April 2024, the sector grew 31.3% over the prior 12 months, keeping just ahead of the tech sector.
The communication services segment is relatively new, created by combining FANG stocks with the telecom sector in 2018. The sector consists of telecommunications and media companies of various kinds. It is characterized by high-growth, cyclical stocks of companies that see massive decline in demand when an economy enters a downturn. The sector is, by nature, economically sensitive. Over the past year, it has done very well primarily because of its close link to the tech sector and the AI optimism that has led to its resurgence.Similarly, it has slowed down over the past quarter, with the tech boom taking a backseat over interest rate concerns.
The sector did, however, have a good first-quarter 2024 earnings season. The “Magnificent Seven” stocks, which comprise mainly tech and communication services, did exceedingly well in the quarter. This also meant that even as the communication services segment ended April as its first losing month in six months, the last week of the month witnessed a massive turnaround in inflows.
For some time now, despite delays by the Fed, general investor consensus has been that a recession has been averted and a soft landing of the economy seems attainable with rate cuts on the not-so-distant horizon. In such an environment, tech and tech-based sectors like communication services do well historically. Funds focused on stocks from this diverse group, thus, provide a great opportunity to investors looking to add solidity and fast growth to their portfolio.
Hence, astute investors should invest in communication services funds at present. Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
We have thus selected two such communication services mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy), 2 (Buy), have positive 5-year and 10-year annualized returns, minimum initial investments within $5000 and carry a low expense ratio.
DWS Science and Technology (KTCAX - Free Report) primarily invests in common stocks of science and technology companies, including communication services. For investment purposes, KTCAX advisors may concentrate on one or more industries in the technology sector.
Sebastian P. Werner has been the lead manager of KTCAX since November 2017. Three top holdings for the fund are NVIDIA (11%), Meta (8.7%), and Broadcom (5.6%).
KTCAX’s 3-year and 5-year annualized returns are 8.1% and 17.8%, respectively. Its net expense ratio is 0.90%. KTCAX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
T. Rowe Price Comm & Tech Investor (PRMTX - Free Report) primarily invests in securities of communications and technology companies. PRMTX advisors may use both growth and value approaches to arrive at their investment decisions. The portfolio may consist of a relatively small number of holdings.
James Stillwagon has been the lead manager of PRMTX since November 2019. Three top holdings for the fund are Meta (7.3%), Alphabet (7%) and T-Mobile (5.7%).
PRMTX’s 5-year and 10-year annualized returns are 10.1% and 13.3%, respectively. Its net expense ratio is 0.77%. PRMTX has a Zacks Mutual Fund Rank #2.
Fidelity Select Semiconductors (FSELX - Free Report) primarily invests in securities of semiconductors and related companies. The markets for semiconductors are widely influenced by the communication services sector. FSELX advisors use fundamental analysis of factors like each issuer's financial condition and industry position to arrive at their investment decision.
Adam Benjamin has been the lead manager of FSELX since March 2020. Three top holdings for the fund are Nvidia (24.1%), NXP Semiconductors (7.7%) and ON Semiconductor (7%).
FSELX’s 3-year and 5-year annualized returns are 28% and 32.1%, respectively. Its net expense ratio is 0.68%, compared with the category average of 1.23%. FSELX has a Zacks Mutual Fund Rank #1.
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3 Communication Services Funds to Buy as the Sector Remains Solid
Communication Services did quite well in 2023, ending just behind the broader tech sector that it is part of. However, as of April 2024, the sector grew 31.3% over the prior 12 months, keeping just ahead of the tech sector.
The communication services segment is relatively new, created by combining FANG stocks with the telecom sector in 2018. The sector consists of telecommunications and media companies of various kinds. It is characterized by high-growth, cyclical stocks of companies that see massive decline in demand when an economy enters a downturn. The sector is, by nature, economically sensitive. Over the past year, it has done very well primarily because of its close link to the tech sector and the AI optimism that has led to its resurgence.Similarly, it has slowed down over the past quarter, with the tech boom taking a backseat over interest rate concerns.
The sector did, however, have a good first-quarter 2024 earnings season. The “Magnificent Seven” stocks, which comprise mainly tech and communication services, did exceedingly well in the quarter. This also meant that even as the communication services segment ended April as its first losing month in six months, the last week of the month witnessed a massive turnaround in inflows.
For some time now, despite delays by the Fed, general investor consensus has been that a recession has been averted and a soft landing of the economy seems attainable with rate cuts on the not-so-distant horizon. In such an environment, tech and tech-based sectors like communication services do well historically. Funds focused on stocks from this diverse group, thus, provide a great opportunity to investors looking to add solidity and fast growth to their portfolio.
Hence, astute investors should invest in communication services funds at present. Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
We have thus selected two such communication services mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy), 2 (Buy), have positive 5-year and 10-year annualized returns, minimum initial investments within $5000 and carry a low expense ratio.
DWS Science and Technology (KTCAX - Free Report) primarily invests in common stocks of science and technology companies, including communication services. For investment purposes, KTCAX advisors may concentrate on one or more industries in the technology sector.
Sebastian P. Werner has been the lead manager of KTCAX since November 2017. Three top holdings for the fund are NVIDIA (11%), Meta (8.7%), and Broadcom (5.6%).
KTCAX’s 3-year and 5-year annualized returns are 8.1% and 17.8%, respectively. Its net expense ratio is 0.90%. KTCAX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
T. Rowe Price Comm & Tech Investor (PRMTX - Free Report) primarily invests in securities of communications and technology companies. PRMTX advisors may use both growth and value approaches to arrive at their investment decisions. The portfolio may consist of a relatively small number of holdings.
James Stillwagon has been the lead manager of PRMTX since November 2019. Three top holdings for the fund are Meta (7.3%), Alphabet (7%) and T-Mobile (5.7%).
PRMTX’s 5-year and 10-year annualized returns are 10.1% and 13.3%, respectively. Its net expense ratio is 0.77%. PRMTX has a Zacks Mutual Fund Rank #2.
Fidelity Select Semiconductors (FSELX - Free Report) primarily invests in securities of semiconductors and related companies. The markets for semiconductors are widely influenced by the communication services sector. FSELX advisors use fundamental analysis of factors like each issuer's financial condition and industry position to arrive at their investment decision.
Adam Benjamin has been the lead manager of FSELX since March 2020. Three top holdings for the fund are Nvidia (24.1%), NXP Semiconductors (7.7%) and ON Semiconductor (7%).
FSELX’s 3-year and 5-year annualized returns are 28% and 32.1%, respectively. Its net expense ratio is 0.68%, compared with the category average of 1.23%. FSELX has a Zacks Mutual Fund Rank #1.
Want key mutual fund info delivered straight to your inbox?
Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>