Last week, fund manager of Red Oak Technology Select (ROGSX - Free Report) , Mark Oelschlager, expressed his long-standing faith in Alphabet Inc. (GOOGL - Free Report) . He said that despite a strong increase in Alphabet’s Class A and Class C shares, both the share classes seem “compelling” and that there is no need to immediately sell the share classes to reap profits.
Oelschlager points to Alphabet’s strong free cash flow yield and the sustainability of its business model. Following these promising trends, investing in technology mutual funds with a significant holding in the Google’s parent company and other tech giants will be prudent.
Why Oelschlager Favors Google?
Oelschlager said that following a strong increase in Alphabet’s first-quarter revenues, “the stock is right around a 5% free cash yield,” that remains near where the market is and is likely better. Alphabet’s two major share classes together hold the largest equity position of the Red Oak Technology Select Fund, making up around 8.1% of the fund’s total assets.
Oelschlager and his team not only take into account the stocks’ free cash flow yield and price-to-earnings valuations but also keep a close on watch on a company’s business “sustainability.” Although, many tech investors look for new tech companies who are expected to be the next “big stars of the future,” Oelschlager agreed that the odds of such occurrence “are against you.” Oelschlager’s unwavering trust in Alphabet and strong exposure of ROGSX in technology sector has contributed to its stupendous performance.
ROGSX Ranked Third Among Actively Managed Tech Funds
Moreover, per Morningstar, Red Oak Technology Select Fund’s annual turnover ratio is quite low as compared to other actively managed funds, which is 6%. Here, we have compared ROGSX’s performance against the S&P 500 Information Technology Sector.
| ||Total return - 12 months||Average annual return - 5 years|
|Red Oak Technology Select Fund||34.5%||129.5%|
|S&P 500 Information Technology Sector||30.1%||102%|
*As of June 30
ROGSX was better than the S&P 500 Information Technology Sector both in the last one-year and five-year periods. Further, out of the total 51 actively managed U.S. open-ended technology funds, ROGSX holds rank 3 in the past five years.*As of June 30
In the first half of 2017, the tech sector jumped 13.2%, remaining the second-best performer among the S&P 500 sectors. Also, the tech-based index Nasdaq increased 14.1% in the prior half of this year, registering its best half-year growth since 2009. According to Morningstar, technology mutual funds have returned 19% over the last six months, emerging as the best performers among different sector equity funds’ categories.
Buy These 5 Mutual Funds
Here, we have selected five mutual funds that have significant exposure to the tech sector and Alphabet as one of its top three holdings. Moreover, these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). 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.
These funds have encouraging three-month and year-to-date (YTD) returns and minimum initial investment is within $5000. Also, each of these funds has a low expense ratio.
Red Oak Technology Select invests a major portion of its assets in equity securities of those companies that operate in the technology sector. ROGSX invests in both U.S. and non-U.S. companies as well as American Depositary Receipts. The fund seeks appreciation of capital for the long run.
The fund has three-month and YTD returns of 3.2% and 12.8%, respectively, and an expense ratio of 1.09% as compared with the category average of 1.45%. ROGSX has a Zacks Mutual Fund Rank #2. Further, as of the last filing, Alphabet Inc, Cisco Systems Inc and Microsoft Corp were the top holdings for ROGSX.
Fidelity Select Technology (FSPTX - Free Report) seeks capital growth over the long run. FSPTX invests a large chunk of its assets in common stocks of companies primarily involved in production, development and sale of products used for technological advancement. The fund invests in both U.S. and non-U.S. companies. Factors including financial strength and economic condition are considered before investing in a company.
The fund has three-month and YTD returns of 7.4% and 26.5%, respectively, and an expense ratio of 0.76% as compared to the category average of 1.45%. FSPTX has a Zacks Mutual Fund Rank #1. Further, as of the last filing, Alphabet Inc, Apple Inc. and Facebook Inc. were the top holdings for FSPTX.
Northern Technology invests a major portion of its assets in securities of companies primarily involved in the technology sector. NTCHX invests a minimum of one-fourth share of its assets in securities of companies engaged in manufacturing and selling of computer hardware or software and peripheral products. The fund invests in securities of companies irrespective of their market capitalization. It may also participate in IPO markets.
The fund has three-month and YTD returns of 5.6% and 18.7%, respectively, and an expense ratio of 1.27% as compared to the category average of 1.45%. NTCHX has a Zacks Mutual Fund Rank #2. Further, as of the last filing, Apple Inc., Alphabet Inc. and Microsoft Corp. were the top holdings for NTCHX.
Janus Global Technology T (JAGTX - Free Report) invests the lion’s share of its assets in equity securities of those companies that are expected to gain from improvements or advancements in technology. JAGTX seeks capital appreciation for the long run. The fund invests in both domestic and foreign companies with stable growth potential. It generally invests in companies from different nations including the U.S.
The fund has three-month and YTD returns of 8.3% and 22.7%, respectively, and an expense ratio of 0.94% as compared to the category average of 1.45%. JAGTX has a Zacks Mutual Fund Rank #2. Further, as of the last filing, Microsoft Corp., Alphabet Inc. and Amphenol Corp were the top holdings for JAGTX.
Putnam Global Technology A (PGTAX - Free Report) invests a huge portion of its net assets in securities of companies in technology industries. PGTAX generally invests in common stocks of large- and mid-cap technology companies, which are expected to have strong investment potential. This non-diversified fund seeks growth of capital.
The fund has three-month and YTD returns of 8.1% and 25.2%, respectively, and an expense ratio of 1.28% as compared to the category average of 1.45%. PGTAX has a Zacks Mutual Fund Rank #1. Further, as of the last filing, Alphabet Inc., Microsoft Corp. and Apple Inc. were the top holdings for PGTAX.
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