Long-term investors who bought shares of technology sector mutual funds during the down market in 2020 were rewarded with some nice gains, although the sector seemed to stall after the first quarter of 2021. Sector funds tend to be more volatile, but 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 one that mostly invests in the tech sector. This includes tech-related businesses, such as:
- Computer hardware manufacturers
- Software manufacturers
- Electronics services
- Technology services
- Information technology
- Business data processing
- Entertainment streaming
Some examples of tech companies include Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Google (GOOGL). You might also hear these referred to as the "FAANG" index.
Why Invest in Tech Mutual Funds?
Perhaps the best reason to buy these funds is that you can gain access and exposure to dozens—or even hundreds—of technology stocks in just one fund. You don’t have to spend time researching the stocks one by one.
You can buy a low-cost index fund instead, or a top actively managed fund that concentrates its holdings in a number of tech stocks. An index fund mimics the holdings of the index it follows, whereas an actively managed fund tries to beat the market through a mix of stocks and bonds.
Index funds often have no or very low fees. Actively managed funds tend to have quite a bit of overhead in terms of salaries, research costs, and other costs. You'll want to take fees into account if you decide to invest. They can add up and take a big bite out of your returns over time. You can find a fund's fee structure by looking at its prospectus, which you can often find online.
This sector can be volatile because technology can quickly become outdated, changing products or services within short life cycles.
How We Found the Best Tech Sector Funds
There are dozens of tech mutual funds on the market. We used an online mutual fund research tool with a few key criteria to narrow our list down to five. We cut out funds that charge loads (sales charges and/or commissions), and those that have high expense ratios above 1.00%.
We also cut out actively managed funds that didn't beat their target benchmark for five- and 10-year returns. Their performances had to closely match that of their target benchmarks.
Best Tech Sector Mutual Funds for 2021
Here are the best tech funds for 2021, in no particularly order:
Fidelity Select Technology (FSPTX)
This may be the best choice if you're looking for an actively managed tech fund. Its performance for one-, three-, five- and 10-year returns places FSPTX ahead of the average fund in this sector. The portfolio consists mostly of large-cap tech names like AAPL and MSFT. Expenses are reasonable at 0.71%.
Columbia Global Technology Growth (CMTFX)
CMTFX is an actively managed fund that invests in tech stocks around the globe. Performance beats the tech category average in five- and 10-year returns, and the expense ratio is 0.97%. Top holdings include AAPL and MSFT.
Fidelity Select Semiconductors (FSELX)
You may consider adding FSELX to your portfolio if you want focused exposure to semiconductor stocks. Examples of FSELX top holdings include Intel Corp (INTC) and Qualcomm (QCOM). FSELX’s expense ratio is 0.72%.
Fidelity Select Software and IT Services (FSCSX)
FSCSX is a focused, specialty tech fund from Fidelity. It concentrates its holdings in the tech sub-sector of software and information technology. Microsoft (MSFT) is a well-known example of a software provider, and Salesforce.com (CRM) is an example of info tech. Both of these are top holdings in FSCSX. The expense ratio is 0.71%.
Vanguard Information Technology Index (VITAX)
This tech sector fund from Vanguard will appeal to those who want a low-cost, passively managed fund. Some will be priced out of VITAX with the minimum start-up purchase requirement of $100,000. But here's the good news: A Vanguard ETF version (ticker VGT) has the same low expense ratio of 0.10% with a per-share price of around $188.
The Bottom Line
Tech stock mutual funds can be good choices for long-term investors with a high tolerance for risk. Tech is an aggressive growth stock category, so you should be comfortable with ups and downs in value that 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 in the short term. They employ a buy-and-hold strategy for periods of more than one year. It’s often wise to build a diversified portfolio that combines multiple asset types (stocks, bonds, and cash) in diverse categories.
Determine your investor profile. Decide what your goals are before you invest. Your profile will include data such as your age, your marital status, your number of dependents, income, expenses, and risk tolerance. Your goals might focus on saving for retirement, buying a house, or funding education.
Many low-cost brokerage houses, such as TD Ameritrade or Charles Schwab, offer helpful online tools to guide you through the process. Many also require little or no minimums to open an account.
NOTE: The Balance doesn't provide tax or investment services or advice. This information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor. It might not be right for all investors. Investing involves risk, including the loss of principal.