The Best Technology Mutual Funds

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The Best Technology Mutual Funds

Bob Ciura

|

Technology stocks rise
The technology sector has strongly outperformed the broader market so far in 2015. As measured by the Technology Select SPDR ETF (XLK), the technology sector has returned 7% year-to-date, while the broader S&P 500 Index is down 1% in the same period. That means technology stocks have outperformed the overall market by 8 percentage points so far this year.
Technology stocks have a distinct fundamental advantage. The technology industry is not highly capital-intensive. Companies do not need to spend a great deal of money on capital expenditures to produce future growth, and also do not require a lot of debt to finance their business activities. This results in a high amount of free cash-flow generation. This is why many technology stocks have high free cash-flow generation each year and large amounts of cash on balance sheets.

For investors interested in gaining exposure to the technology sector, here are some top mutual funds that focus on technology stocks.

Top Technology Mutual Funds

Each of these funds invests in a mix of large-cap, mid-cap and small-cap equities, focused in the technology sector. The Fidelity Select Technology Portfolio fund counts Apple (AAPL), Alphabet (GOOG) and Facebook (FB) among its top holdings. The fund’s top 10 holdings comprise 39% of its total portfolio. A nice feature of this fund is that it offers a dividend yield as well, to provide an incremental return for investors interested in generating income.

The T. Rowe Price fund takes a slightly different approach. It focuses its portfolio more highly on social media and Internet stocks, as Amazon (AMZN) and LinkedIn (LNKD) are among its top holdings. It also is more highly concentrated than many other funds, as its top 10 holdings represent 54% of the portfolio. When this is the case, management skill becomes paramount. Investors should take comfort that the portfolio manager has picked good stocks, as the fund has significantly outperformed its peer group so far this year.

The AllianzGI fund has had more-muted returns than its competitors this year, but looking back further, it has performed very well. The fund has achieved a 20% average return over the past three years, placing it near the top of its category. However, investors will have to pay a steep price for such strong performance. The fund carries an annual expense ratio more than double some of its peers, which is something investors should keep in mind. Like the T. Rowe Price fund, the AllianzGI fund is highly concentrated. The top 10 holdings make up 52% of its total portfolio, as it has made savvy bets on Amazon, Facebook and Microsoft (MSFT).

Like the AllianzGI fund, the BlackRock fund carries a higher expense ratio than many others because it, too, takes a specialized approach. The fund targets underdeveloped nations more so than many of its peers. For example, the fund may invest as much as 25% of its net assets in emerging economies. This has paid off in the form of double-digit returns so far in 2015. Over the past one year, the fund has returned nearly 20%.

Conclusion

The four mutual funds listed above have several characteristics that should appeal to investors. The funds have performed well this year, above the average market returns year-to-date. In addition, they carry low expense ratios below their peer averages. As a result, investors interested in technology should consider these four mutual funds.
Image courtesy of samuiblue at FreeDigitalPhotos.net

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Technology stocks rise

The Best Technology Mutual Funds

Bob Ciura

|

The technology sector has strongly outperformed the broader market so far in 2015. As measured by the Technology Select SPDR ETF (XLK), the technology sector has returned 7% year-to-date, while the broader S&P 500 Index is down 1% in the same period. That means technology stocks have outperformed the overall market by 8 percentage points so far this year.
Technology stocks have a distinct fundamental advantage. The technology industry is not highly capital-intensive. Companies do not need to spend a great deal of money on capital expenditures to produce future growth, and also do not require a lot of debt to finance their business activities. This results in a high amount of free cash-flow generation. This is why many technology stocks have high free cash-flow generation each year and large amounts of cash on balance sheets.

For investors interested in gaining exposure to the technology sector, here are some top mutual funds that focus on technology stocks.

Top Technology Mutual Funds

Each of these funds invests in a mix of large-cap, mid-cap and small-cap equities, focused in the technology sector. The Fidelity Select Technology Portfolio fund counts Apple (AAPL), Alphabet (GOOG) and Facebook (FB) among its top holdings. The fund’s top 10 holdings comprise 39% of its total portfolio. A nice feature of this fund is that it offers a dividend yield as well, to provide an incremental return for investors interested in generating income.

The T. Rowe Price fund takes a slightly different approach. It focuses its portfolio more highly on social media and Internet stocks, as Amazon (AMZN) and LinkedIn (LNKD) are among its top holdings. It also is more highly concentrated than many other funds, as its top 10 holdings represent 54% of the portfolio. When this is the case, management skill becomes paramount. Investors should take comfort that the portfolio manager has picked good stocks, as the fund has significantly outperformed its peer group so far this year.

The AllianzGI fund has had more-muted returns than its competitors this year, but looking back further, it has performed very well. The fund has achieved a 20% average return over the past three years, placing it near the top of its category. However, investors will have to pay a steep price for such strong performance. The fund carries an annual expense ratio more than double some of its peers, which is something investors should keep in mind. Like the T. Rowe Price fund, the AllianzGI fund is highly concentrated. The top 10 holdings make up 52% of its total portfolio, as it has made savvy bets on Amazon, Facebook and Microsoft (MSFT).

Like the AllianzGI fund, the BlackRock fund carries a higher expense ratio than many others because it, too, takes a specialized approach. The fund targets underdeveloped nations more so than many of its peers. For example, the fund may invest as much as 25% of its net assets in emerging economies. This has paid off in the form of double-digit returns so far in 2015. Over the past one year, the fund has returned nearly 20%.

Conclusion

The four mutual funds listed above have several characteristics that should appeal to investors. The funds have performed well this year, above the average market returns year-to-date. In addition, they carry low expense ratios below their peer averages. As a result, investors interested in technology should consider these four mutual funds.
Image courtesy of samuiblue at FreeDigitalPhotos.net

Sign up for Advisor Access

Receive email updates about best performers, news, CE accredited webcasts and more.

Popular Articles

Download our free report

Find out why $30 trillon is invested in mutual funds.

Why 30 trillion is invested in mutual funds book

Why 30 trillion is invested in mutual funds book

Download our free report

Find out why $30 trillon is invested in mutual funds.

Why 30 trillion is invested in mutual funds book

Download our free report

Find out why $30 trillon is invested in mutual funds.


Read Next

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