The technology sector in the United States performed exceptionally well in the third quarter. A rally in tech shares saw the tech-laden Nasdaq breach its 50th record close of this year on the last trading day of the quarter. Further, increased investment in technological R&D has also bolstered the sector’s growth.
Moreover, tech shares have posted stupendous earnings throughout this fiscal and we expect this momentum to continue in the near term. Lastly, Trump’s one-time tax repatriation policy is bound to make tech companies wealthier and hence we suggest investing now. This is why it would be prudent to invest in tech mutual funds at this point.
Robust Technological Developments and Excellent Earnings
Another reason why the tech stocks have outperformed the industry could be the emergence of cutting-edge technology such as cloud computing, big data, Internet of Things, wearable devices, VR headsets, drones, virtual reality devices, and artificial intelligence. Strong earnings from tech stocks throughout 2017 have also been pivotal in boosting the sector higher.
The Q3 earnings season is at full throttle and we believe the bullish trend in tech is likely to continue as tech behemoths, particularly FAAMG stocks — Facebook (FB - Free Report) , Apple (AAPL - Free Report) , Amazon.com (AMZN - Free Report) , Microsoft (MSFT - Free Report) and Alphabet (GOOGL - Free Report) — are all set to report this week. We expect the FAAMG family to report robust earnings in Q3, while the broader tech sector is expected to be up 9.7% on 6.7% higher revenues.
Acceptance of the Budget Blueprint Will Bolster Tech Shares
In a 51-49 vote late Thursday, the Senate approved the budget blueprint for fiscal 2018. Economists believe that such a move ensures taxpayers that existing tax codes could soon be rewritten. Meanwhile, market watchers continue to pour money into Internet and tech companies, and the most basic thing that is driving them at this point is taxes. Trump has promised to deliver historic relief to corporate America by lowering tax rates. The corporate tax is expected to be slashed from 35% to 20%.
Another major reform proposed is the repatriation of trillions of dollars held as cash reserve overseas by the companies with global operations for one-time tax (reportedly 10%). Moreover, in 2004, the Bush administration attempted a similar repatriation tax holiday for bringing in overseas cash reserves for a one-time tax of 5.25%. A number of companies repatriated an amount exceeding $300 billion.
Let us not forget that tech behemoths Apple, Alphabet, Microsoft, Cisco Systems, Inc. (CSCO - Free Report) and Oracle (ORCL - Free Report) hold 88% of their money overseas to avoid paying the 35% corporate tax rate on earnings. Thus, they are positioned to gain immensely under Trump’s tax reduction plan. Companies like Hewlett Packard Enterprise Co (HPE - Free Report) and QUALCOMM, Inc.’s (QCOM - Free Report) earnings are also projected to rise around 20.8% and 10.5%, respectively, on a repatriation tax cut, per Strategas Research Partners. (Read More)
5 Best Performing Technology Mutual Funds
Here, we have highlighted five technology mutual funds flaunting a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging third-quarter and YTD returns. Additionally, the minimum initial investment is within $5000 and net assets are above $50 million. Splendid earnings and more than favorable economic conditions make the tech sector a hotbed of money.
Moreover, Trump’s one-time tax repatriation policy is deemed to improve the overall financial health of tech companies. Moreover, as the earnings momentum in the tech sector is slated to continue in the near term, we believe tech mutual funds are a hot choice.
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.
Putnam Global Technology Y PGTYX seeks growth of capital over the long run. PGTYX invests a major portion of its assets in securities of companies involved in operations related to the technology domain. PGTYX uses a blend strategy to invest in common stocks of companies. The fund primarily invests in securities of large- and mid-cap companies.
PGTYX has an annual expense ratio of 1.03%, which is below the category average of 1.39%. The fund has three-year and YTD returns of 23.1% and 42.6%, respectively.
Fidelity Advisor Technology I FATIX seeks appreciation of capital in the long run. FATIX invests the lion’s shares of its assets in common stocks and securities of companies involved in developing and offering products and services which would, in the future, benefit a great deal from technological developments.
FATIX has an annual expense ratio of 0.77%, which is below the category average of 1.39%. The fund has three-year and YTD returns of 22.4% and 46.4%.
Franklin DynaTech A (FKDNX - Free Report) seeks growth of capital over the long run. FKDNX mostly invests in companies that are expected to be leaders in innovation, have superior management, can reap the benefit of new technologies and have an advantage from new industry situations in the dynamically fluctuating global economy.
FKDNX has an annual expense ratio of 0.90%, which is below the category average of 1.12%. The fund has three-year and YTD returns of 15.5% and 35.8%.
Red Oak Technology Select (ROGSX - Free Report) invests the lion’s share of its assets in equity securities of companies in the technology sector. ROSGX seeks appreciation of capital in the long run and invests primarily in the common stocks of domestic companies but might also invest in securities of non-U.S. companies.
ROGSX has an annual expense ratio of 1.09%, which is below the category average of 1.39%. The fund has three-year and YTD returns of 20.1% and 26.1%.
Deutsche Science and Technology A (KTCAX - Free Report) seeks appreciation of capital in the long run. KTCAX invests the lion’s share of its assets in securities of companies of any size and involved in the science and technology sector. The fund may also invest in initial public offerings.
KTCAX has an annual expense ratio of 0.99%, which is below the category average of 1.39%. The fund has three-year and YTD returns of 16.4% and 31.4%.
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