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Ride the Apple Rally on these 4 Mutual Funds

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Apple Inc.’s (AAPL - Free Report) shares have been on a tear lately after bottoming out in May. As always, Apple’s global iPhone 7 launch was marked by excitement and preorders demand hit the roof as confirmed by its carriers. As Apple is hot again, Wall Street pros don’t want to be on the wrong side. They raised their price targets, while predicting a rally in the near term due to stronger-than-expected sales of the new iPhone.

Meantime, in an environment where stocks are too expensive, Apple is still trading at a reasonable price. Thanks to these promising trends, investing in technology mutual funds with a significant holding in this iPhone maker will be a prudent decision.

Best Week in Almost 5 Years

Apple’s shares gained 11.4% to $114.92 last week, its best weekly climb since Oct 2011. During the first four days of the week, the iPhone maker’s shares rallied around 11%, the highest four-day gain since Apr 29, 2014. In fact, its shares went up 3.4% to $115.57 on Thursday, the highest level since Dec 2015. Even though its shares dipped 0.6% on Friday, it did add about $63 billion in market value in the said week.

APPLE INC Price and Consensus

 

So, what’s driving this commendable performance? It’s the strong demand for the new iPhone 7 and 7 Plus that boosted Apple. People camped out for days to be the first to get their hands on the iPhone. At an Apple store in the Georgetown district of the US capital Washington, dozens of people waited for the stores to open to get the new handsets. Many even ordered online to get hold of the iPhone.

Apple said that preorders for its new range of iPhone have been significantly higher and that the initial supplies were sold off quickly worldwide. Its three carrier services in the U.S., T-Mobile US, Inc. TMUS, Sprint Corporation S and AT&T, Inc. T also confirmed the robust demand for iPhone 7.

Apple Rally Boosts Tech Sector

Tech shares have been gaining lately. In the past three months, the tech sector jumped 10%, more than twice of any other sector on the S&P 500. This is in contrast to last year when a slump in tech raised concerns about the health of the U.S. economy.

Last week, the tech sector rose 3%, way above the S&P 500’s gain of 0.5%. Lest we forget, the tech-heavy Nasdaq outpaced its peers last week, gaining 2.3%. One of the biggest drivers behind these recent gains has been Apple. According to the S&P Dow Jones Indices, excluding Apple, the tech sector’s gains this month through Thursday dropped to 0.2% from 1.5%. Apple remains the biggest company in the index in terms of market capitalization.

Shares Move Toward All-Time High

Skeptics may question whether Apple still has room to run. However, the stock looks like a relative bargain this time around when investors are concerned about stretched valuations. The stock has a forward price-to-earnings (P/E) ratio of 13.88, compared with 17.90 for the S&P 500.  This gives us a fair idea that the stock has more scope for growth in the near term, given that the demand for iPhone 7 series is pretty high.

BMO Capital’s analyst Tim Long has raised his price target on the stock to $140. Long feels that iPhone sales will beat expectations, while Apple Watch Series 2 will have better prospects. Canaccord analyst T. Michael Walkley also raised his price target to $140. He concluded that initial replacement sales were upbeat as stateside carriers are finding success with their iPhone promotions.

RBC Capital Markets analysts led by Amit Daryanani too increased the price target to $120 and maintained a rating of “outperform”. Daryanani believes that attractive valuations, stable gross margin, consumer friendly ecosystem of hardware and software will give Apple an edge over its competitors.  To top it, analysts at BTIG Research firm expect iPhone sales in the final quarter of this year to grow 3.6% to 77.5 million.

Apple’s Stellar Performance Puts 4 Mutual Funds in Focus

Thanks to the aforementioned bullish sentiment, investing in technology mutual funds having a significant exposure to Apple will be a judicious choice. Moreover, more often than not, the technology sector reports relatively above par earnings fueled by demand for technology and innovation. During the second quarter, big tech firms posted better-than-expected earnings due to their focus on cloud and mobile devices (read more: Play 3 Technology Mutual Funds as Cloud, Mobile Fuel Profits).

We have chosen four mutual funds that have Apple in the top four holdings, as per their last filing. These funds also possess a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy), have positive 3-year and 5-year annualized returns, minimum initial investments within $5000 and carry low expense ratios.

The question here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why investors should park their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Northern Technology NTCHX invests the majority of its net assets in securities of companies principally engaged in technology business activities. NTCHX’s 3-year and 5-year annualized returns are 10% and 11.9%, respectively. Its annual expense ratio of 1.26% is lower than the category average of 1.50%. NTCHX has a Zacks Mutual Fund Rank #2.

Fidelity Select Technology FSPTX invests a large portion of its assets in securities of companies engaged in using or developing products, processes or services that will benefit from technological advances and improvements. FSPTX’s 3-year and 5-year annualized returns are 13.7% and 14.4%, respectively. Its annual expense ratio of 0.76% is lower than the category average of 1.50%. FSPTX has a Zacks Mutual Fund Rank #1.

Columbia Global Technology Growth A CTCAX invests a major portion of its assets in equity securities of technology companies that may benefit from technological improvements, advancements or developments. CTCAX’s 3-year and 5-year annualized returns are 16.3% and 17.4%, respectively. Its annual expense ratio of 1.40% is lower than the category average of 1.50%. CTCAX has a Zacks Mutual Fund Rank #2.

Putnam Global Technology A PGTAX invests a lion’s share of its net assets in securities of companies in the technology industries. PGTAX’s 3-year and 5-year annualized returns are 17.2% and 14.1%, respectively. Its annual expense ratio of 1.26% is lower than the category average of 1.50%. PGTAX has a Zacks Mutual Fund Rank #1.

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