Best Technology Mutual Funds to Buy in 2020
Is Now a Good Time to Invest in Technology Funds?
Long-term investors can take advantage of the down market in 2020 and buy shares of technology sector mutual funds. While sector funds tend to be more volatile, bear-market prices can be hard to resist. Find out if tech funds are right for you before you buy.
What Are Technology Mutual Funds?
A technology mutual fund is a mutual fund that invests primarily in the technology sector of the economy. The technology sector includes technology-related businesses, such as:
- Computer hardware manufacturers
- Software manufacturers
- Electronics services
- Technology services
- Information technology
- Business data processing
- Entertainment streaming
Some examples of technology companies include Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Google (GOOGL). You might also hear these referred to as the "FANG" index.
Why Invest In Technology Mutual Funds?
Perhaps the greatest advantage of buying technology mutual funds is that you can gain access and exposure to dozens or even hundreds of technology stocks in just one fund. Another advantage is that you don’t have to spend time researching and analyzing individual stocks.
Instead, you can buy a low-cost index fund or a top actively-managed fund that concentrates its holdings in a number of technology stocks. An index fund mimics the holdings of the index it follows, whereas an actively managed fund tries to beat the market through a bespoke mix of stocks and bonds.
Index funds generally have no or very low fees compared to an actively managed fund. Actively managed funds usually have quite a bit of overhead in terms of salaries, research costs, and other expenses. You'll want to take fees into account if you decide to invest in a fund. They can add up and take a big bite out of your returns over time. You can determine a fund's fee structure by referencing its prospectus, which is typically available online.
The technology sector can be volatile because of quickly outdated technology, changing regulations and products or services with short life cycles.
How We Found the Best Tech Sector Funds
There are dozens of technology mutual funds on the market. We used an online mutual fund research tool with a few key selection criteria to narrow our list down to five technology funds:
- Expenses: We eliminated funds that charge loads (sales charge/commission) and those that have high expense ratios (above 1.00%).
- Performance: To make our list of technology funds, we eliminated actively-managed funds that did not beat their target benchmark for 5- and 10-year returns. For index funds investing in technology, their performance needed to closely match that of its target benchmark.
Best Technology Sector Mutual Funds for 2020
Using the above selection criteria, and in no particular order, here are the best tech funds for 2020:
Fidelity Select Technology (FSPTX)
This may be the best choice overall if you're looking for an actively-managed technology fund. The performance for all the main time frames—1-, 3-, 5- and 10-year returns—places FSPTX ahead of the average fund in the category of technology sector funds. The portfolio consists primarily of large-cap technology names like AAPL and MSFT. Expenses are reasonable at 0.72%.
Columbia Global Technology Growth (CMTFX)
CMTFX is an actively-managed technology mutual fund that invests in tech stocks around the globe. Performance beats the technology category average in the 5- and 10-year returns and the expense ratio is 0.99%. Top holdings include AAPL and MSFT.
Fidelity Select Semiconductors (FSELX)
Investors wanting focused exposure to semiconductor stocks may consider adding FSELX to their portfolio. Examples of FSELX top holdings include Intel Corp (INTC) and Qualcomm (QCOM). FSELX’s expenses are 0.73%.
Fidelity Select Software and IT Services (FSCSX)
Another focused, specialty technology fund from Fidelity is FSCSX. It concentrates its holdings in the tech sub-sector of software and information technology. A commonly known example of a software provider is Microsoft (MSFT), and Salesforce.com (CRM) is an example of information technology. Both of these are top holdings in FSCSX. The expense ratio is 0.72%.
Vanguard Information Technology Index (VITAX)
This tech sector fund from Vanguard will appeal to investors who want a low-cost, passively managed mutual fund. Some investors will be priced out of VITAX with the minimum initial purchase requirement of $100,000. There's good news, however: A Vanguard ETF version (ticker VGT) has the same low expense ratio of 0.10% with a per-share price of around $200.
The Bottom Line
Technology stock mutual funds can be good investments for long-term investors with a high tolerance for risk. Technology is an aggressive growth stock category, which means that potential investors should be comfortable with price volatility—ups and downs in value—which can be more pronounced than a broadly diversified fund such as an S&P 500 Index fund.
Also, keep in mind that smart investors don't try to time the market by jumping in and out of investments in the short term. Instead, they will employ a buy and hold strategy for periods of more than one year. It’s generally wise to build a diversified portfolio that combines multiple asset types (stocks, bonds, and cash) in diverse categories.
Before deciding on whether to invest in any security, it's wise first to determine what your investor profile and objectives are. Your investor profile will include things such as your age, marital status, dependents, income, expenses, and risk tolerance. Investment objectives will focus on goals such as saving for retirement, buying a house, and educational funding. If you don't have access to a professional investment advisor, many low cost brokerage houses, such as TD Ameritrade or Charles Schwab, offer helpful online tools that will guide you through the process. Many also require little or no minimums to establish an account.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.