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The technology sector may have taken a beating toward the end of 2018, but has turned around from the beginning of this year. FAANG’s remarkable performance and a rebound in semiconductor stocks helped tech stocks gain traction.
Tech Stocks Rally
FAANG stocks were in the bear territory last year.
However, FAANG stocks have rebounded and posted impressive gains so far this year, significantly outpacing S&P 500’s performance. Apple partially helped break Wall Street’s five-day losing streak on Mar 11, largely benefiting from Bank of America’s upgrade of the iPhone maker’s stock.
Bank of America analyst Wamsi Mohan upgraded the stock to “buy” from “neutral,” stating that the company’s “stability of supply chain order cuts” and “growth across healthcare, wearables and increasing services penetration,” will help it bounce back.
In fact, the recent rally in the technology sector was partly led by semiconductor company Nvidia as well, after agreeing to acquire Israeli chipmaker Mellanox for $6.8 billion. The tech stock rally helped the S&P 500 post its biggest rise since late January.
Semiconductor stocks had the worst quarter in 10 years in the October-December period amid slowing demand for memory chips. But the companies have been performing well lately owing to their improved outlook. In addition, the iShares PHLX Semiconductor ETF (SOXX) has gained 17.1% compared with SPDR S&P 500 ETF’s (SPY) 11.4% rise on a year-to-date basis.
An upcoming development on the macroeconomic front could boost the tech sector as well. A well-framed U.S.-China trade agreement would definitely help the tech giants gain.
Per a CNBC report, Donald Trump is furiously pursuing a deal with China in an effort to bring about a rally in stock markets before the presidential election in 2020. Therefore, a favorable trade deal would surely pump up tech stocks, owing to their high exposure to China.
The overall tech sector, by the way, is also gaining from a strong digital transformation scenario, ground-breaking innovations and implementation of new technologies such as Internet-of-Things, 5G wireless networks and artificial intelligence etc. Further, semiconductors, in particular, are gaining from demand for high-end gadgets, microprocessors and memory chips.
Why Invest in Tech Funds Now?
Given the aforesaid positives, investing in tech funds seems prudent.
The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Our Choices
We have selected a couple of mutual funds from the technology sector that you could consider adding to your portfolio. These funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5,000.
We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also on the likely future success of the fund.
Red Oak Technology Select (ROGSX - Free Report) seeks long-term capital appreciation by mostly investing at least 80% of its net assets in equity securities of companies that operate in the technology sector. The fund primarily invests in common stocks of American companies but may also invest in common stocks of non-U.S. companies, equity REITs and American Depository Receipts that match the investment criteria of ROGSX. The top three holdings of the fund are Microsoft, Alphabet and Intel.
This Sector – Tech product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
ROGSXhas a Zacks Rank #1 and an annual expense ratio of 0.94%, which is below the category average of 1.31%. The fund has three and five-year returns of 26.3% and 16.3%, respectively.The minimum initial investment for ROGSXis $2000.
Janus Henderson Global Technology A (JATAX - Free Report) seeks long-term capital appreciation. The fund invests the majority of its assets in securities of companies that the fund’s portfolio managers believe will gain significantly from advancements in technology. The top three holdings of the fund are Microsoft, Alphabet and Tencent.
This Sector – Tech product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
JATAXhas a Zacks Rank #2 and an annual expense ratio of 1.00%, which is below the category average of 1.31%. The fund has three and five-year returns of 29.1% and 17%, respectively.The minimum initial investment for JATAXis $2500.
Fidelity Select Semiconductors (FSELX - Free Report) seeks long-term capital growth by primarily investing in common stocks of companies that design and manufacture semiconductors and related equipment. The non-diversified fund invests in both U.S. and non-U.S. companies. The top three holdings of the fund are Broadcom, Marvell Technology and NVIDIA.
This Sector – Tech product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
FSELXhas a Zacks Rank #2 and an annual expense ratio of 0.74%, which is below the category average of 1.31%. The fund has three and five-year returns of 26.8% and 19.8%, respectively.The minimum initial investment for FSELXis $2500.
Columbia Seligman Communications & Information Advisor (SCIOX - Free Report) seeks to gain capital by investing at least 80% of its net assets in securities of companies that operate in telecommunications, information technology sectors and businesses in the media industry. The non-diversified fund may also invest up to 25% of its funds in non-U.S. companies. The top three holdings of the fund are Lam Research, Broadcom and Micron Technology.
This Sector – Tech product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
SCIOXhas a Zacks Rank #2 and an annual expense ratio of 0.99%, which is below the category average of 1.31%. The fund has three and five-year returns of 21.8% and 17.8%, respectively.SCIOX has no minimum initial investment.
T. Rowe Price Global Technology (PRGTX - Free Report) is a non-diversified fund that seeks to gain capital by investing at least 80% of its net assets in common stocks of companies that the fund’s manager believes will generate major revenues from advancements in technology. Usually, the fund aims to invest in at least five countries and allot 25% of its assets in businesses outside the United States. The top three holdings of the fund are Alibaba, Alphabet and NXP Semiconductors.
This Sector – Tech product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
PRGTXhas a Zacks Rank #2 and an annual expense ratio of 0.91%, which is below the category average of 1.31%. The fund has three and five-year returns of 24.8% and 19.4%, respectively.The minimum initial investment for PRGTXis $2500.
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5 Tech Funds That Gained More Than 20% in 3 Years
The technology sector may have taken a beating toward the end of 2018, but has turned around from the beginning of this year. FAANG’s remarkable performance and a rebound in semiconductor stocks helped tech stocks gain traction.
Tech Stocks Rally
FAANG stocks were in the bear territory last year.
However, FAANG stocks have rebounded and posted impressive gains so far this year, significantly outpacing S&P 500’s performance. Apple partially helped break Wall Street’s five-day losing streak on Mar 11, largely benefiting from Bank of America’s upgrade of the iPhone maker’s stock.
Bank of America analyst Wamsi Mohan upgraded the stock to “buy” from “neutral,” stating that the company’s “stability of supply chain order cuts” and “growth across healthcare, wearables and increasing services penetration,” will help it bounce back.
In fact, the recent rally in the technology sector was partly led by semiconductor company Nvidia as well, after agreeing to acquire Israeli chipmaker Mellanox for $6.8 billion. The tech stock rally helped the S&P 500 post its biggest rise since late January.
Semiconductor stocks had the worst quarter in 10 years in the October-December period amid slowing demand for memory chips. But the companies have been performing well lately owing to their improved outlook. In addition, the iShares PHLX Semiconductor ETF (SOXX) has gained 17.1% compared with SPDR S&P 500 ETF’s (SPY) 11.4% rise on a year-to-date basis.
An upcoming development on the macroeconomic front could boost the tech sector as well. A well-framed U.S.-China trade agreement would definitely help the tech giants gain.
Per a CNBC report, Donald Trump is furiously pursuing a deal with China in an effort to bring about a rally in stock markets before the presidential election in 2020. Therefore, a favorable trade deal would surely pump up tech stocks, owing to their high exposure to China.
The overall tech sector, by the way, is also gaining from a strong digital transformation scenario, ground-breaking innovations and implementation of new technologies such as Internet-of-Things, 5G wireless networks and artificial intelligence etc. Further, semiconductors, in particular, are gaining from demand for high-end gadgets, microprocessors and memory chips.
Why Invest in Tech Funds Now?
Given the aforesaid positives, investing in tech funds seems prudent.
The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Our Choices
We have selected a couple of mutual funds from the technology sector that you could consider adding to your portfolio. These funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5,000.
We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also on the likely future success of the fund.
Red Oak Technology Select (ROGSX - Free Report) seeks long-term capital appreciation by mostly investing at least 80% of its net assets in equity securities of companies that operate in the technology sector. The fund primarily invests in common stocks of American companies but may also invest in common stocks of non-U.S. companies, equity REITs and American Depository Receipts that match the investment criteria of ROGSX. The top three holdings of the fund are Microsoft, Alphabet and Intel.
This Sector – Tech product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
ROGSXhas a Zacks Rank #1 and an annual expense ratio of 0.94%, which is below the category average of 1.31%. The fund has three and five-year returns of 26.3% and 16.3%, respectively.The minimum initial investment for ROGSXis $2000.
Janus Henderson Global Technology A (JATAX - Free Report) seeks long-term capital appreciation. The fund invests the majority of its assets in securities of companies that the fund’s portfolio managers believe will gain significantly from advancements in technology. The top three holdings of the fund are Microsoft, Alphabet and Tencent.
This Sector – Tech product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
JATAXhas a Zacks Rank #2 and an annual expense ratio of 1.00%, which is below the category average of 1.31%. The fund has three and five-year returns of 29.1% and 17%, respectively.The minimum initial investment for JATAXis $2500.
Fidelity Select Semiconductors (FSELX - Free Report) seeks long-term capital growth by primarily investing in common stocks of companies that design and manufacture semiconductors and related equipment. The non-diversified fund invests in both U.S. and non-U.S. companies. The top three holdings of the fund are Broadcom, Marvell Technology and NVIDIA.
This Sector – Tech product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
FSELXhas a Zacks Rank #2 and an annual expense ratio of 0.74%, which is below the category average of 1.31%. The fund has three and five-year returns of 26.8% and 19.8%, respectively.The minimum initial investment for FSELXis $2500.
Columbia Seligman Communications & Information Advisor (SCIOX - Free Report) seeks to gain capital by investing at least 80% of its net assets in securities of companies that operate in telecommunications, information technology sectors and businesses in the media industry. The non-diversified fund may also invest up to 25% of its funds in non-U.S. companies. The top three holdings of the fund are Lam Research, Broadcom and Micron Technology.
This Sector – Tech product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
SCIOXhas a Zacks Rank #2 and an annual expense ratio of 0.99%, which is below the category average of 1.31%. The fund has three and five-year returns of 21.8% and 17.8%, respectively.SCIOX has no minimum initial investment.
T. Rowe Price Global Technology (PRGTX - Free Report) is a non-diversified fund that seeks to gain capital by investing at least 80% of its net assets in common stocks of companies that the fund’s manager believes will generate major revenues from advancements in technology. Usually, the fund aims to invest in at least five countries and allot 25% of its assets in businesses outside the United States. The top three holdings of the fund are Alibaba, Alphabet and NXP Semiconductors.
This Sector – Tech product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
PRGTXhas a Zacks Rank #2 and an annual expense ratio of 0.91%, which is below the category average of 1.31%. The fund has three and five-year returns of 24.8% and 19.4%, respectively.The minimum initial investment for PRGTXis $2500.
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 >>