4 Funds to Gain as Digital Transformation Continues in 2021

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The year 2020 was a wake-up call to businesses across the globe. Digital transformation is essential for businesses to not only compete with experienced opponents but also continue operation in pandemic-like scenarios in the future. Given the current situation, mutual funds with significant exposure to digital transformative technology are poised to continue growth in 2021.

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The pandemic acted as a driver for innovation and digitalization in businesses globally last year. According to the ‘Situation Report’ global survey of IT Leaders by Software AG, 97% of IT directors surveyed said that their company went through digital transformation efforts in 2020 and will continue to do so in 2021. Among the companies surveyed, 95% believe technology will help them tackle future challenges. In fact, in 2021, the cloud computing, 5G, AI and digital integration are areas of focus for global IT leaders.

According to a MarketsandMarkets Research report, the global digital transformation market is expected to rise from $469.8 billion in 2020 to $1009.8 billion by 2025, at a CAGR of 16.5%. Apart from the pandemic push, this amplification of digital transformation is largely driven by shifting consumer expectations, increased competition, innovative technology, evolving legislation and regulations. This is because digital transformation offers a one-stop solution along with humongous data archive and assessing multiple facets of the market to draw logical conclusions.

The use of advanced technologies like cloud, IoT, big data and analytics has led innovation and transformation in the business ecosystem. This would help businesses provide an instant, precise and real-time response from the analysis of big data, creating products and services, enhancing existing ones, and formulating entirely new business models to gain a competitive edge.

What Drives Digital Transformation in 2021?

Now to answer the “what” part of the context, majority of companies adopted digital transformation practices in 2020 or before to focus on digital interactions with customers, supply chain or employees. The adoption of modern technology has opened up endless opportunities, from obtaining real-time information, gaining actionable insights, understanding customer requirements and facilitating growth in overall productivity. This has led to an increase in demand for digital transformation solutions across various industry verticals.

Every business faces different sets of challenges. They have different sales operations, enterprise collaborations and customer bases. Hence, to handle challenges, digital transformation technology vendors need to focus on building highly personalized digital transformation solutions that meet the precise requirements of different industries and businesses.

4 Top Fund Choices

Digital transformation is reshaping the business landscape. Thus, we have shortlisted four mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) that are poised to grow. Moreover, these funds have encouraging year-to-date (YTD) returns. Additionally, the minimum initial investment is within $5000. We expect these funds to outperform peers in the future.

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).

Fidelity Select Technology Portfolio FSPTX fund aims for capital appreciation. It invests primarily in equity securities, especially common stocks of companies that are engaged in offering, using, or developing products, processes, or services that will provide or will benefit significantly from technological advances and improvements.

This Zacks Sector – Tech product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSPTX has an annual expense ratio of 0.71% versus the category average of 1.24%. This non-diversified has returned 31.1% and 30.5% in the past three and five years, respectively.

Franklin DynaTech Fund Class A FKDNX aims for capital appreciation. The fund invests in common stocks of companies that its manager believes are leaders in innovation, have superior management, and benefit from new industry conditions in a dynamically changing global economy.

This Zacks sector – Tech fund has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FKDNX has an annual expense ratio of 0.85%, which is below the category average of 1.04%. Specifically, the fund has three and five-year annualized return of 30.3% and 25.5%, respectively.

Fidelity Select Semiconductors Portfolio FSELX fund aims for capital appreciation. The non-diversified fund invests majority of assets in securities of companies principally engaged in the design, manufacture, or sale of semiconductors and semiconductor equipment.

This Zacks sector – Tech fund has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSELX has an annual expense ratio of 0.72%, which is below the category average of 1.24%. The fund has three and five-year annualized return of 27.9% and 30.2%, respectively.

Fidelity Select Software & IT Services Portfolio FSCSX fund aims for capital appreciation. This non-diversified fund invests majority of assets in common stocks of companies engaged in research, design, production or distribution of products or processes that relate to software or information-based services.

This Zacks Sector – Tech product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSCSX has an annual expense ratio of 0.71% versus the category average of 1.24%. Specifically, the fund has three and five-year return of 28.1% and 26.3%, respectively.

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