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 better earnings performance than the other sectors due to greater demand for technology and innovation. Improving industry fundamentals and emerging technologies such as AI, machine learning, robotics and data science are key catalysts.
Meanwhile, most of the mutual funds investing in securities from these sectors take a growth-oriented approach that includes focusing on companies with strong fundamentals and a relatively higher investment prospect. Moreover, technology has come to have a broader meaning than just hardware and software companies. Social media and Internet companies are now part of the technology landscape.
The U.S. technology sector has performed remarkably well so far this year despite fears related to a slowdown in the global economy as well as trade tensions. Tech has turned out to be the best performing sector so far in 2019, with the Technology Select Sector SPDR Fund (XLK) gaining 42.7% year to date.
Under such circumstances, investing in technology mutual funds seems prudent. However, choosing the right mutual funds for your portfolio can be cumbersome. To that end, let us find out which of the two funds discussed below is better.
This fund 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 are 22.1% over the 3-year and 18.6% of the 5-year period. To see how this fund performed compared in its category, and other #1 and #2 Ranked Mutual Funds, please click here.
The Fidelity Select Software and IT Services Portfolio Fund, as of the last filing, allocates its assets in top two major groups — Large Growth and Emerging Market. Further, as of the last filing, Microsoft Corp, Visa Inc and Adobe Systems Inc were the top holdings for FSCSX.
Sporting a Zacks Mutual Fund Rank #1 (Strong Buy), FSCSX was incepted in July 1985 and carries an expense ratio of 0.72%. The fund requires no minimal initial investment.
This fund aims for capital growth that can be achieved by investing in technology companies. Therefore, the fund invests majority of its assets in common stocks of companies that operate in the technology sector. The fund mostly aims to invest in companies that develop and implement scientific and technological innovation, which can offer high levels of growth.
This Sector-Tech product has a history of positive total returns for over 10 years. Specifically, the fund’s returns over the 3 and 5-year benchmarks are 21.1% and 15.4%, respectively. To see how this fund performed compared in its category, and other #1 and #2 Ranked Mutual Funds, please click here.
The DWS Science and Technology Fund, as of the last filing, allocates its assets in the top two major groups — Large Growth and Emerging Market. Further, as of the last filing, Microsoft Inc, Apple Inc. and Amazon.com Inc were the top holdings for KTCAX.
This Zacks Rank #1 fund was incepted in September 1948 and carries an expense ratio of 0.93%. The fund requires a minimal initial investment of $1,000.
While both FSCSX and KTCAX carry a Zacks Mutual Fund Rank #1, upon taking a closer look, we find that the latter is a clear winner. However, the administrative and other operating expenses of KTCAX are higher than FSCSX’s.
Also, FSCSX has returned 29.1% year to date compared with 31.8% returned by KTCAX in the same period. Meanwhile, FSCSX offers lower risk compared to KTCAX. Notably, KTCAX has a 3-year beta of 1.08 compared with FSCSX’s 0.96. However, KTCAX is worth the risk, given consistency in providing high returns on investment.
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