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5 Best-Performing Technology Mutual Funds of Q1

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The U.S. technology sector could manage decent gains in the first quarter of 2018 despite the recent turmoil. Such gains were primarily achieved on the back of consistent efforts to adopt the latest technologies such a machine learning and artificial intelligence even as investments have been robust. Further, Trump’s tax reforms, particularly the clause related to one-time tax on repatriation of profits held abroad have boosted the sectors’ fortunes.

Moreover, earnings prospects for the sector in the first quarter also remain bright. This is why investors must consider buying technology mutual funds that stood out in the first three months of the year.

How Did Technology Perform in Q1?

The Technology Select Sector SPDR Fund (XLK) managed to rise 1.1% in the first quarter of 2018 despite the tech space being battered by a slew of unfavorable events. This increase followed an 8% growth in the third quarter of 2017.

Of late, tech companies have been embroiled in disputes and struggles. Facebook’s data scam triggered widespread panic, spreading concerns about data privacy and security. Consequently, there were concerns over stringent regulations over the social media space. Such developments weighed heavily on the broader tech space.

Further, incidents like Uber’s and Tesla’s driverless car crashes forced Nvidia to suspend self-driving car tests. Also, an acute selloff in Netflix on speculation related to overvaluation thrashed the space in the last one month.

U.S. President Donald Trump announced that he would levy new tariffs worth up to $60 billion on China, mainly targeting that country’s technology sector. If these weren’t enough, the U.S. Commerce Department’s Bureau of Industry and Security barred American companies from selling to ZTE for seven years after the Chinese company allegedly broke a “settlement agreement” and falsified certain facts. They also charged the company with exporting telecom equipment to Iran and North Korea.

Trump also alleged that Amazon had not been paying Internet taxes. The company was also penalized for paying the postal services a pittance for deliveries.

Factors Driving Tech Growth

Despite the recent mayhem, technology seems unperturbed.  What has primarily kept the sector afloat is steady performance by major players in the space to adopt growing technologies such as cloud computing, cloud infrastructure build-out, networking innovations, corporate focus on security, the proliferation of wearables and increased automation on the factory floor.

Emergence and growing adoption of Artificial Intelligence (AI) solutions, VR headsets, drones and virtual reality devices have also propelled gains for the space.

High demand for power-efficient as well as high performance chips, essential for running cloud-data centers and processing massive data by using Big Data analytics, machine learning and deep-learning tools is mainly behind the popularity of technology stocks.

Trump’s landmark tax bill which lowered from the corporate tax rate from 35% to 21% has also been instrumental in boosting gains for the sector. His one-time tax repatriation policy enables tech behemoths to bring profits they hoard abroad, back home for a one-time tax.

Earnings Prospects Remain Strong

Unlike the Finance sector whose earnings performance improved notably this earnings season compared to the other recent periods, the Tech sector’s earnings performance has been strong over the last many quarters. This strength is expected to continue in the Q1 earnings season as well.

Total Q1 earnings for the Tech sector are expected to be up 20.9% from the same period last year on 11.5% higher revenues. This would follow 24.2% earnings growth for the sector on 11.1% revenue growth in the preceding quarter. (Read: Can Tech Earnings Live Up to Expectations?)

5 Best Funds to Buy

Given such circumstances, we have highlighted five of the best-performing technology mutual funds in the first quarter of 2018. These funds also carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have provided encouraging returns in the last three months. Additionally, the minimum initial investment is within $5000.

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.

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).

Janus Global Technology T JAGTX gains 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 countries including the United States.

JAGTX has an annual expense ratio of 0.93%, which is below the category average of 1.38%. The fund has returned 7.7% in the last three months and sports a Zacks Rank #1.

Franklin DynaTech A FKDNX 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 0.91%, which is below the category average of 1.10%. The fund has returned 6.9% in the last three months and carries a Zacks Rank #1.

Deutsche Science and Technology A KTCAX 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 0.96%, which is below the category average of 1.38%. The fund has returned 5.6% in the last three months and sports a Zacks Rank #1.

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 1.38%. The fund has returned 6.3% in the last three months and has a Zacks Rank #2.

Fidelity Advisor Technology I (FATIX - Free Report)  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 1.38%. The fund has returned 5.8% in the last three months and carries a Zacks Rank #2.

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