Best-Performing Technology Mutual Funds of Q1 2015 - Mutual Fund Commentary

Gourab Das

Updated Fri, May 8, 2015, 11:45 AM

The first quarter earnings numbers for some tech bellwethers have been cheered by market participants. The tech sector is among the sectors to have the best stock-price response to Q1 earnings. Nasdaq hit a record high among the flurry of earnings releases.

Among the most popular stocks, Apple reported strong second-quarter fiscal 2015 results; wherein their earnings jumped 40.4% year over year on higher revenues from iPhone and Mac sales. Meanwhile, upbeat quarterly results from Amazon and Microsoft also helped the Nasdaq hit a record high.

Meanwhile, market participants also saw Google’s shares gaining, though it fell short of expectations. However, management was able to explain away its problems by explaining the progress on YouTube that has been an area investors have been concerned about. Separately, eBay reported a solid first quarter, despite currency headwinds. IBM too had reported better-than-expected first quarter 2015 earnings.

For the tech mutual funds though, the sector’s gain was restricted to just about 3% in first quarter. This however is far above the 0.2% gain in the Technology SPDR ETF (XLK) in first quarter. Returns from the top 15 technology funds in first quarter are also decently above the sector’s 3% return. The highest return touched 8.6%, while the 15th ranked fund returned 4.1%.

The Tech Sector as of May 7

More often than not the technology sector is likely to report above par earnings than other sectors as the demand for technology and innovation remains high. However, technology stocks are considered to be more volatile than other sector specific stocks in the short run. In order to minimize this short term volatility almost all tech funds adopt a growth management style with a focus on strong fundamentals and a relatively higher investment horizon. Investors having an above par appetite for risk and fairly longer investment horizon should park their savings in these funds.

On the revenues side, the best growth rate among the 16 Zacks sectors is from the Retail sector – up 11.7% year on year. Medical and Technology have the next best revenue growth rates, up 8.8% and 7.5%, respectively.

The Technology sector’s total earnings improved 6.9% on 7.5% higher revenues, with 47.9% of the sector companies beating EPS and 45.8% beating revenue estimates. The sector’s respectable-looking growth numbers was largely due to Apple’s (AAPL) strong quarterly report. (Read: Standout Sectors of Q1 Earnings Season)

The Tech Sector: Semiconductor, Cloud Computing

The top 15 technology fund performers include funds from varied fund families. Moreover, the list includes funds that focus on varied sectors of the broad technology space. These funds invest in advance science and technology, Internet and also semiconductor firms.

According to the Semiconductor Industry Association (SIA), worldwide semiconductor industry recorded sales growth of 9.9% in 2014 to $335.8 billion. Also, the report indicated worldwide semiconductor sales growth of 3.4% in 2015, followed by 3.1% improvement in 2016. The industry is experiencing growth primarily due to developing end markets and new product offerings, supported by process and yield improvements by semiconductor manufacturers.

Separately, the ever-evolving technology sector has been witnessing a number of new trends over the past couple of years. Of these, the notable ones include Bring Your Own Device (BYOD), cloud computing, Big Data, Internet of Things (IoT), flash storage, social networking, 3D printing and wearable devices.

These technologies have brought a massive change in the IT storage industry. Last year, we saw mainstream adoption of cloud computing by enterprises. As consumers’ dependence on cloud for storage purpose increases, there will be a proportionate increase in the demand for cloud-dedicated data centers.

Widespread implementation of CRM and ERP solutions, increased Internet and mobile penetration, highly growing media and regulatory compliance resulted in data explosion for enterprises.

Further, according to research firm Global Industry Analysis Inc. (GIA), information is currently growing at a rate of more than 65% every year with total data generated worldwide anticipated to cross 3 million petabytes by 2020. All these have contributed to the growth of the storage industry.

Keep reading our Mutual Fund Commentary section, where we are reporting on performances and best picks from fund families and varied categories.

Top 15 Technology Mutual Funds of Q1 2015:

In the table below, we present the top 15 Technology mutual funds with the best returns of Q1 2015:
Note: The list excludes the same funds with different classes, and institutional funds have been excluded. Funds having minimum initial investment above $5000 have been excluded. Q1 % Rank vs Objective* equals the percentage the fund falls among its peers. Here, 1 being the best and 99 being the worst.

Only two of the funds here, Firsthand Technology Opportunities (TEFQX) and Ivy Science & Technology A (WSTAX) carry unfavorable Zacks Mutual Fund Ranks. Nine of the funds are favorably placed, with Buffalo Discovery Fund (BUFTX), USAA Science & Technology Fund (USSCX), Fidelity Select Technology (FSPTX) and Columbia Seligman Global Tech A (SHGTX) carrying a Zacks Mutual Fund Rank #1 (Strong Buy).

Separately, Franklin DynaTech A (FKDNX), Fidelity Adv Technology A (FADTX), BlackRock Science & Tech Opps A (BGSAX), Matthews Asia Science & Tech Inv (MATFX) and T. Rowe Price Global Technology (PRGTX) carry a Zacks Mutual Fund Rank #2 (Buy).

T. Rowe Price Global Technology has carried on the strong run in 2014 and over recent years. Its 3 and 5 year annualized returns now stand at 23.5% and 20.8%. Earlier this year, T. Rowe Price Global Technology was also suggested as one of the three funds that investors may buy for 2015. (Read: 3 Mutual Funds to Buy in 2015)

About Zacks Mutual Fund Rank

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Pick the best mutual funds with the Zacks Rank.

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Best-Performing Technology Mutual Funds of Q1 2015 - Mutual Fund Commentary

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