Risk lovers seeking healthy returns over a fairly long investment horizon may opt for technology mutual funds. It is believed that the technology sector is poised for a brighter earnings performance than other sectors due to greater demand for technology and innovation.
Improving industry fundamentals and emerging technologies such as wearables, VR headsets, drones, virtual reality devices, and artificial intelligence are the key catalysts to the sectors’ growth.
Meanwhile, the Federal Reserve estimated that the U.S. economy will grow at a steady rate of 2.3% in 2019, which also bodes well for the tech sector. Under such circumstances in which the tech sector is poised for big gains this year, it calls for investing in mutual funds having significant exposure to tech companies.
Netflix to Lead the Tech Rally in 2019?
Video-streaming service provider Netflix announced on Tuesday that it was raising its monthly U.S. prices by as much 13% to 18%. Although high prices could alienate subscribers, the company is confident of retaining customers on the back of its high-quality content. Netflix’s positive business outlook has helped FAANG stocks rally significantly. Further, this marked the fourth time that the company has rolled out plans to hike prices, with the last hike taking place in 2017.
Moreover, this was the biggest hike in prices since Netflix’s launch 12 years ago. Analysts have cautioned that this hike will impact all of Netflix’s 58 million subscribers that the company had announced last September. The most popular monthly plan, which is currently priced at $11 a month, will now be hiked to $13 a month.
Meanwhile, Netflix came out with quarterly earnings of 30 cents per share, beating the Zacks Consensus Estimate of 24 cents per share. Netflix shares have added about 31.3% since the beginning of the year versus the S&P 500's gain of 5%.
Watch Out for Tech in 2019
However, in 2019 so far, XLK and Nasdaq Composite are up 3.1% and 5.9%, respectively. Currently, almost half of the tech stocks on the Nasdaq 100 are languishing in a bear market. Still, it helps to keep in mind that the dotcom bubble was such a disaster that it took years for the Nasdaq 100 to move above its 2000 high. Several dotcom era favorites like Pets.com vanished altogether.
The technology sector is benefiting from continued strong digital transformation environment. The last few years have witnessed a series of breakthroughs in cloud computing, predictive analytics, artificial intelligence (AI), self-driving vehicles, digital personal assistants and Internet-of-Things (IoT), which have set the stage for robust growth. Moreover, the United States is all set to witness massive deployment of 5G wireless networks in 2019. This will significantly raise demand for high-tech handheld gadgets and micro-processors.
3 Best Funds to Buy
Given such circumstances, we have highlighted three mutual funds that are poised to gain significantly from the latest hiring spree in the United States. These funds also carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three and one-year returns. 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 multiple 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).
Fidelity Select Software & IT Services Portfolio No Load (FSCSX - Free Report) invests the majority of its assets in companies whose primary operations are related to software or information-based services. It primarily focuses on acquiring common stocks of both domestic and foreign companies.
This Sector - Tech product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 16.8% and 13.7%, respectively. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
The fund carries a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 0.73%, which is below the category average of 1.32%.
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.
This Sector - Tech product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 18.3% and 13.6%, respectively. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
The fund carries a Zacks Mutual Fund Rank #2 and has an annual expense ratio of 0.92%, which is below the category average of 1.32%.
Fidelity Select Semiconductors (FSELX - Free Report) invests the bulk of its assets in common stocks of companies involved in the manufacture, design and sale of electronic equipment and components. FSELX seeks growth of capital. The fund invests in both U.S. companies and non-U.S. companies.
This Sector - Tech product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 16.4% and 17.4%, respectively. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
The fund carries a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 0.74%, which is below the category average of 1.32%.
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