The Federal Reserve has been on a relentless drive this year to raise interest rates and bring demand down. The market has seen a streak of 75 bps hikes announced by the central bank to rein in the four-decade-high inflation.
One of the hardest-hit sectors has been technology. The S&P 500 Select Sector SPDR for technology has fallen 26% year to date as people have been driven away from growth stocks.
The tech-focused Nasdaq has fallen 28.8% in the same period. Higher interest rates impact the future cash inflows for growth companies like large-cap tech, as they have less funding for innovations. Despite this, whenever we have seen a green spell in the market this year, more often than not, it has been driven by investors’ faith in the futuristic value of tech stocks.
The technology sector thrived during and in the aftermath of the pandemic, as institutions and retail consumers have grown more tech-dependent and various erstwhile processes have been digitized. Artificial intelligence has been a focal point as companies have reskilled their workforces and optimized remote work capabilities.
It was the war in Ukraine and fears of an impending global recession that weighed in on the sector, but its resilience can be banked upon as we cannot imagine a world without investment in technology.
Also, recent economic data released has shown that the Fed’s tightening of monetary policy might have started taking effect and inflation may have already peaked in June. The jury is out on when the next time the Fed meets in December, whether they opt for a lesser, more assuring 50 bps interest rate hike, or continue with their streak of 75 bps hikes.
There seems to be an overwhelming consensus that the Fed might opt for the former, as it would want to be cautious about not landing the economy in rough waters.
To put things into perspective, even as the S&P 500 Select Sector SPDR for technology has plummeted through the year, it has turned around in October, growing 7.7%. With the three major indexes remaining green in November and with China slowly but surely opening up its economy after relaxing its stringent COVID-19 measures, the sector is slated to grow as investors revert to growth stocks.
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.
Black Oak Emerging Technology Fund BOGSX usually invests the majority of its net assets in equity securities of emerging technology companies. BOGSX invests primarily in common stocks of companies that it considers well positioned to become market leaders among emerging technology companies.
Robert D. Stimpson has been the lead manager of BOGSX since Apr 6, 2006. Three major holdings for the fund are 5.7% in Apple, 5% in Cirrus Logic and 4.8% in SolarEdge Technologies.
BOGSX’s 3-year and 5-year annualized returns are 15.1% and 12.7%, respectively. Its net expense ratio is 1% compared to the category average of 1.05%. BOGSX 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.
Daniel J. Fletcher has been the lead manager of KTCAX since Nov 30, 2017. Three major holdings for the fund are 9.2% in Microsoft, 8.3% in Apple and 7.8% in Amazon.com.
KTCAX’s 3-year and 5-year annualized returns are 7.8% and 10.2%, respectively. Its net expense ratio is 0.88% compared to the category average of 1.05%. KTCAX has a Zacks Mutual Fund Rank #1.
Putnam Global Technology Fund PGTAX aims for capital appreciation by investing mainly in common stocks of global large and mid-cap companies that it believes have favorable investment potential. PGTAX usually invests the majority of its net assets in securities of companies in the technology sector.
Di Yao has been the lead manager of PGTAX since Dec 29, 2012. Three major holdings for the fund are 11.8% in Microsoft, 8.9% in Apple and 6.1% in Taiwan Semiconductor.
PGTAX’s 3-year and 5-year annualized returns are 11.2% and 11.4%, respectively. Its net expense ratio is 0.53% compared to the category average of 1.05%. PGTAX has a Zacks Mutual Fund Rank #2.
Fidelity Advisor Technology Fund FATIX seeks capital appreciation by investing the majority of its net assets in common stocks of companies principally engaged in processes or services that will provide or benefit significantly from technological advances and improvements. For its investment purposes, FATIX uses fundamental analysis of factors such as each issuer's financial condition and industry position, as well as market and economic conditions.
Adam Benjamin has been the lead manager of FATIX since Jul 19, 2020. Three major holdings for the fund are 24.7% in Apple, 19% in Microsoft and 6.1% in NVIDIA.
FATIX’s 3-year and 5-year annualized returns are 15.4% and 14.1%, respectively. Its net expense ratio is 0.71% compared to the category average of 1.05%. FATIX has a Zacks Mutual Fund Rank #1.
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