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This year has been quite eventful for the domestic equity markets, marked by the passing of the much-awaited Republican tax reform and three rate hikes. Following optimism over the implementation of Trump’s tax cut policies, the technology sector has clearly emerged as the best performing sector so far this year, not only for the broader S&P 500, but also among the equity mutual fund categories.
Although, a higher rate environment is likely to weigh on tech stocks, Trump’s tax repatriation plans could benefit technology companies that hold a lot of cash overseas. These tech companies could repatriate the reserves and for further use in investments, dividends and buybacks. In this context, investing in mutual funds from the technology sector still seems prudent.
Technology Sector’s Performance in 2017
The tech-heavy index, Nasdaq has beaten the other two key benchmarks, the Dow and the S&P 500 by a considerable margin so far this year. The Nasdaq has advanced 28.9% year to date, outperforming the Dow and the S&P 500, which increased 25.2% and 19.7%, respectively over the same period.
Moreover, the Technology Select Sector SPDR ETF (XLK) is the biggest gainer among the S&P 500 sectors, adding 32.6% so far in 2017. Additionally, technology mutual funds have increased 36.5%, notching the best gains among the major sector equity fund categories, per Morningstar. Technology mutual funds have also gained 35.6% this year.
Factors Contributing to Tech Gains
A strengthening economy and better job prospects provided a significant boost to economically sensitive growth sectors like technology that typically perform well in a maturing economic cycle. Moreover, the Tax Cuts and Jobs Act of 2017 lowers the corporate tax rate to 21% from 35%, per recent developments. Lower corporate tax will encourage tech companies to raise investment in new cloud services and data centers.
Further, Trump’s tax repatriation policy, which contains a one-time tax of 8% on illiquid overseas assets, is likely to improve the overall financial health of tech companies. The law also sets a 15.5% one-time tax on cash and cash equivalents held overseas, which in turn will help tech giants like Apple Inc. (AAPL - Free Report) , which has overseas cash of more than $250 billion at the end of the fiscal fourth quarter.
A low repatriation rate would allow other large tech corporations that also hoard trillions of dollars reserve overseas to bring back home huge profits and increase payouts to their shareholders. This in turn will play a key role in boosting demand for these securities. Significant cash reserves also provide a shield to these companies. These cash reserves ensure that the companies are not plagued by financial trouble even in a rising interest rate environment, chances of which are high in 2018.
5 Best Performing Technology Funds in 2018
Against this backdrop, it would be wise to pick mutual funds from the space that stood out in 2018. Here, we have highlighted five technology mutual funds that also carry a Zacks Mutual Fund Rank #1 (Strong Buy).
We also 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.
Moreover, these funds come with low expense ratios and with no sales load. Moreover, they have encouraging year-to-date (YTD) returns, and the minimum initial investment is within $5000.
Fidelity Advisor Technology M (FATEX - Free Report) seeks growth of capital. FATEX invests heavily in common stocks of technology companies. The fund invests in both U.S. and non-U.S. companies. FATEX analyzes the financial position as well as market condition of a company, before selecting for investment.
FATEX has returned 49.4% in the YTD period. Annual expense ratio of 1.33% is lower than the category average of 1.44%.
Columbia Global Technology Growth Fund A (CTCAX - Free Report) invests the lion’s share of its assets in common stocks, preferred stocks and securities that are convertible into common or preferred stocks. These equity securities are issued by technology companies that benefit from technological advancements or improvements. CTCAX seeks growth of capital.
CTCAX has returned 43.2% in the YTD period. Annual expense ratio of 1.32% is lower than the category average of 1.44%.
Putnam Global Technology A (PGTAX - Free Report) invests the bulk of its assets in common stocks, including either value or growth stocks or both, of technology companies. The fund invests mainly in large- and mid-cap tech companies that are expected to have strong investment prospects. PGTAX is a non-diversified fund that seeks appreciation of capital.
PGTAX has returned 46.5% in the YTD period. Annual expense ratio of 1.28% is lower than the category average of 1.44%.
Fidelity Select Software & IT Services Portfolio (FSCSX - Free Report) invests the majority of its assets in companies whose primary operations are related to software or information-based services. FSCSX primarily focuses on acquiring common stocks of both domestic and foreign companies. The fund uses fundamental analysis to select companies for investment purposes.
FSCSX has returned 38.8% in the YTD period. Annual expense ratio of 0.75% is lower than the category average of 1.44%.
Janus Global Technology T (JAGTX - Free Report) invests a huge part 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 and invests in both domestic and foreign companies with stable growth potential. It generally invests in companies from different nations including the United States.
JAGTX has returned 44.6% in the YTD period. Annual expense ratio of 0.93% is lower than the category average of 1.44%.
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5 Best Technology Mutual Funds to Watch in 2018
This year has been quite eventful for the domestic equity markets, marked by the passing of the much-awaited Republican tax reform and three rate hikes. Following optimism over the implementation of Trump’s tax cut policies, the technology sector has clearly emerged as the best performing sector so far this year, not only for the broader S&P 500, but also among the equity mutual fund categories.
Although, a higher rate environment is likely to weigh on tech stocks, Trump’s tax repatriation plans could benefit technology companies that hold a lot of cash overseas. These tech companies could repatriate the reserves and for further use in investments, dividends and buybacks. In this context, investing in mutual funds from the technology sector still seems prudent.
Technology Sector’s Performance in 2017
The tech-heavy index, Nasdaq has beaten the other two key benchmarks, the Dow and the S&P 500 by a considerable margin so far this year. The Nasdaq has advanced 28.9% year to date, outperforming the Dow and the S&P 500, which increased 25.2% and 19.7%, respectively over the same period.
Moreover, the Technology Select Sector SPDR ETF (XLK) is the biggest gainer among the S&P 500 sectors, adding 32.6% so far in 2017. Additionally, technology mutual funds have increased 36.5%, notching the best gains among the major sector equity fund categories, per Morningstar. Technology mutual funds have also gained 35.6% this year.
Factors Contributing to Tech Gains
A strengthening economy and better job prospects provided a significant boost to economically sensitive growth sectors like technology that typically perform well in a maturing economic cycle. Moreover, the Tax Cuts and Jobs Act of 2017 lowers the corporate tax rate to 21% from 35%, per recent developments. Lower corporate tax will encourage tech companies to raise investment in new cloud services and data centers.
Further, Trump’s tax repatriation policy, which contains a one-time tax of 8% on illiquid overseas assets, is likely to improve the overall financial health of tech companies. The law also sets a 15.5% one-time tax on cash and cash equivalents held overseas, which in turn will help tech giants like Apple Inc. (AAPL - Free Report) , which has overseas cash of more than $250 billion at the end of the fiscal fourth quarter.
A low repatriation rate would allow other large tech corporations that also hoard trillions of dollars reserve overseas to bring back home huge profits and increase payouts to their shareholders. This in turn will play a key role in boosting demand for these securities. Significant cash reserves also provide a shield to these companies. These cash reserves ensure that the companies are not plagued by financial trouble even in a rising interest rate environment, chances of which are high in 2018.
5 Best Performing Technology Funds in 2018
Against this backdrop, it would be wise to pick mutual funds from the space that stood out in 2018. Here, we have highlighted five technology mutual funds that also carry a Zacks Mutual Fund Rank #1 (Strong Buy).
We also 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.
Moreover, these funds come with low expense ratios and with no sales load. Moreover, they have encouraging year-to-date (YTD) returns, and the minimum initial investment is within $5000.
Fidelity Advisor Technology M (FATEX - Free Report) seeks growth of capital. FATEX invests heavily in common stocks of technology companies. The fund invests in both U.S. and non-U.S. companies. FATEX analyzes the financial position as well as market condition of a company, before selecting for investment.
FATEX has returned 49.4% in the YTD period. Annual expense ratio of 1.33% is lower than the category average of 1.44%.
Columbia Global Technology Growth Fund A (CTCAX - Free Report) invests the lion’s share of its assets in common stocks, preferred stocks and securities that are convertible into common or preferred stocks. These equity securities are issued by technology companies that benefit from technological advancements or improvements. CTCAX seeks growth of capital.
CTCAX has returned 43.2% in the YTD period. Annual expense ratio of 1.32% is lower than the category average of 1.44%.
Putnam Global Technology A (PGTAX - Free Report) invests the bulk of its assets in common stocks, including either value or growth stocks or both, of technology companies. The fund invests mainly in large- and mid-cap tech companies that are expected to have strong investment prospects. PGTAX is a non-diversified fund that seeks appreciation of capital.
PGTAX has returned 46.5% in the YTD period. Annual expense ratio of 1.28% is lower than the category average of 1.44%.
Fidelity Select Software & IT Services Portfolio (FSCSX - Free Report) invests the majority of its assets in companies whose primary operations are related to software or information-based services. FSCSX primarily focuses on acquiring common stocks of both domestic and foreign companies. The fund uses fundamental analysis to select companies for investment purposes.
FSCSX has returned 38.8% in the YTD period. Annual expense ratio of 0.75% is lower than the category average of 1.44%.
Janus Global Technology T (JAGTX - Free Report) invests a huge part 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 and invests in both domestic and foreign companies with stable growth potential. It generally invests in companies from different nations including the United States.
JAGTX has returned 44.6% in the YTD period. Annual expense ratio of 0.93% is lower than the category average of 1.44%.
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 >>