The gloom and doom of 2022 has subsided, and one sector that is making a roaring comeback this year is technology. The emergence of next-generation artificial intelligence has been the talk of the town and stocks of tech companies are soaring. The tech space is leaving behind all other sectors in 2023 and the outlook looks rosy, only if the recession were to be averted.
The dominance of technology stocks is on display, and the biggest evidence, perhaps, is the tech-heavy Nasdaq Composite jumping 26.9% since the beginning of the year, as of Jun 6. Even the S&P 500 Index, which has advanced 11.6% in the same period, has risen on the back of the tech boom, with roughly 28% of its market cap comprising the seven technology giants, Microsoft, Amazon, Alphabet, Apple, Tesla, Meta and the biggest mover of the year, Nvidia. On the other hand, the Dow Jones, which might not be called a tech index, has advanced a meager 1.3%.
Also, signals have started to come in from the Fed that they might be nearing the end of their rate-hiking cycle. In May, the Fed met to announce another 25 bps hike but subsequently released minutes of the meeting and comments from various attendees assured investors that the central bank is currently deliberating whether to end the rate-hike cycle as early as June.
It is not inevitable that the rate hikes would immediately stop with inflation numbers remaining high and the labor market remaining strong. Also, debt-ceiling negotiations between the two major political parties bore fruit, thereby stopping the economy from diving into a recession, which would have otherwise meant a prompt cessation of rate hikes. Even then, the general consensus remains that interest rates would not go up in the Fed June meeting, and officials would like to see more economic data before raising rates again.
In such an eventuality, tech stocks are slated to make the most of the opportunity. If rates do not go up any further, treasury yields would fall, and mega-cap growth stocks like tech majors would become more lucrative. Technology would continue to ride the wave and grow even further.
Hence, astute investors may look to invest in technology mutual funds at present. Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
We have thus selected four such technology mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive three-year and five-year annualized returns, minimum initial investments within $5000, and carry a low expense ratio.
Fidelity Advisor Semiconductors Fund FELIX usually invests the majority of its net assets in common stocks of companies engaged in the design, manufacture, or sale of semiconductors and semiconductor equipment. FELIX’s advisors use fundamental analysis of factors such as each issuer’s financial condition and industry position, as well as market and economic conditions for the fund’s investment decisions.
Adam Benjamin has been the lead manager of FELIX since Mar 15, 2020. Three major holdings for the fund are 24.7% in NVIDIA, 9.7% in NXP Semiconductors and 8.6%% in On Semiconductor.
FELIX’s 3-year and 5-year annualized returns are 27.1% and 22.2%, respectively. Its net expense ratio is 0.75% compared to the category average of 1.05%. FELIX has a Zacks Mutual Fund Rank #1. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
DWS Science and Technology Fund KTCAX usually invests the majority of its net assets in common stocks of science and technology companies of any size. KTCAX focuses on one or more industries in the technology sector. The fund also invests in foreign securities and is non-diversified.
Sebastian P. Werner has been the lead manager of KTCAX since Nov 30, 2017. Three major holdings for the fund are 7.4% in Microsoft, 7.1% in Apple, and 6.9% in Alphabet.
KTCAX’s 3-year and 5-year annualized returns are 10.1% and 12.6%, respectively. Its net expense ratio is 0.89% compared to the category average of 1.05%. KTCAX has a Zacks Mutual Fund Rank #1.
Janus Henderson Global Technology and Innovation Fund JNGTX aims for long-term growth of capital and specializes in technology. JNGTX invests at least the majority of its net assets in securities of companies that the portfolio manager believes will benefit significantly from advances or improvements in technology.
Jonathan Cofsky has been the lead manager of JNGTX since Feb 28, 2022. Three major holdings for the fund are 12.9% in Microsoft, 7.9% in ASML Holding, and 4.4% in Workday.
JNGTX’s 3-year and 5-year annualized returns are 9.7% and 12.9%, respectively. Its net expense ratio is 0.80% compared to the category average of 1.05%. JNGTX has a Zacks Mutual Fund Rank #2.
Putnam Global Technology Fund PGTAX seeks capital appreciation by investing the majority of its net assets in common stocks of large and midsize technology companies worldwide that the advisor believes have favorable investment potential.
Di Yao has been the lead manager of PGTAX since Dec 29, 2012. Three major holdings for the fund are 14.4% in Microsoft, 11.3% in Apple, and 6% in Visa.
PGTAX’s 3-year and 5-year annualized returns are 14.3% and 15%, respectively. Its net expense ratio is 0.56% compared to the category average of 1.05%. PGTAX has a Zacks Mutual Fund Rank #2.
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