Last week, fund manager of Red Oak Technology Select (MUTF:ROGSX) Mark Oelschlager, expressed his long-standing faith in Google parent Alphabet Inc. He said that despite a strong increase in GOOGL stock and GOOG stock, both of the share classes seem “compelling” and that there is no need to immediately sell the share classes to reap profits.
Oelschlager points to Alphabet stock enjoying strong free cash flow yield and the sustainability of its business model. Following these promising trends, investing in technology mutual funds with a significant holding in the Google’s parent company and other tech giants such as Apple Inc. (NASDAQ:AAPL) and Netflix Inc. (NASDAQ:NFLX) will be prudent.
Why Oelschlager Favors Google
Oelschlager said that following a strong increase in Alphabet’s first-quarter revenues, “the stock is right around a 5% free cash yield,” that remains near where the market is and is likely better. Alphabet’s two major share classes together hold the largest equity position of the Red Oak Technology Select Fund, making up around 8.1% of the fund’s total assets.
Oelschlager and his team not only take into account the stocks’ free cash flow yield and price-to-earnings valuations but also keep a close on watch on a company’s business “sustainability.” Although, many tech investors look for new tech companies who are expected to be the next “big stars of the future,” Oelschlager agreed that the odds of such occurrence “are against you.” Oelschlager’s unwavering trust in Alphabet and strong exposure of ROGSX in technology sector has contributed to its stupendous performance.
ROGSX Ranked Third Among Actively Managed Tech Funds
Moreover, per Morningstar, Red Oak Technology Select Fund’s annual turnover ratio is quite low as compared to other actively managed funds, which is 6%. Here, we have compared ROGSX’s performance against the S&P 500 Information Technology Sector.
|Total return – 12 months||Average annual return – 5 years|
|Red Oak Technology Select Fund||34.5%||129.5%|
|S&P 500 Information Technology Sector||30.1%||102%|
*As of June 30
ROGSX was better than the S&P 500 Information Technology Sector both in the last one-year and five-year periods. Further, out of the total 51 actively managed U.S. open-ended technology funds, ROGSX holds rank 3 in the past five years.
In the first half of 2017, the tech sector jumped 13.2%, remaining the second-best performer among the S&P 500 sectors. Also, the tech-based index Nasdaq increased 14.1% in the prior half of this year, registering its best half-year growth since 2009. According to Morningstar, technology mutual funds have returned 19% over the last six months, emerging as the best performers among different sector equity funds’ categories.
Buy These 5 Mutual Funds to Ride GOOGL Stock
Here, we have selected five mutual funds that have significant exposure to the tech sector and Alphabet as one of its top three holdings. Moreover, these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
These funds have encouraging three-month and year-to-date (YTD) returns and minimum initial investment is within $5000. Also, each of these funds has a low expense ratio.