The Federal Reserve finally started lowering rates with a 50 basis point cut at its September meeting. At least another rate cut announcement is expected in November. This would entail wider pockets and a consumer base with more purchasing power. In such an environment, mega-cap growth stocks like tech and communication services seem lucrative because of their current undervaluation.
Communication Services has been one of the success stories from Wall Street in 2024. From the beginning of the year to Nov. 4, the Communication Services Select Sector SPDR (XLC) has grown 27.80%, trailing only the Utilities segment. Consumer spending on discretionary services rise in the holiday season, which is about to start. Sales are likely to go up, especially on the backdrop of falling interest rates.
The sector constitutes companies that provide wired, wireless, satellite, cable, Internet media services, broadcasting and other communication infrastructure. These companies generally boast strong fundamentals. Also, companies that comprise communication services constantly invest in new technologies and innovation and offer significant opportunities for price appreciation. This is why “generative artificial intelligence (AI)” has driven growth in this sector. Several communication services companies could be well-positioned to benefit from the continued evolution of generative AI capabilities.
Hence, astute investors should invest in communication services funds at present. Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
We have thus selected three such communication services mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive 5-year and 10-year annualized returns, minimum initial investments within $5000 and carry a low expense ratio.
Fidelity Advisor Communication ServicesA FGDMX primarily invests in common stocks of communication services companies. FGDMX advisors employ a fundamental analysis approach to arrive at their investment decisions.
Priyanshu Bakshi has been the lead manager of FGDMX since July 2024. The three top holdings of the fund are Alphabet (24.1%), Meta (23.4%) and AT&T (4.8%).
FGDMX’s 3-year and 5-year annualized returns are 4.8% and 15.2%, respectively. Its net expense ratio is 1.04%. FGDMX has a Zacks Mutual Fund Rank #2.
DWS Science and Technology KTCAX primarily invests in common stocks of science and technology companies, including communication services. For investment purposes, KTCAX advisors may concentrate on one or more industries in the technology sector.
Sebastian P. Werner has been the lead manager of KTCAX since November 2017. The three top holdings of the fund are Microsoft (9.5%), NVIDIA (9.2%) and Meta (8.8%).
KTCAX’s 3-year and 5-year annualized returns are 11.9% and 21.4%, respectively. Its net expense ratio is 0.87%. KTCAX has a Zacks Mutual Fund Rank #1. To see how this fund performed compared with its category, and other 1 and 2 Ranked Mutual Funds, please click here.
T. Rowe Price Comm & Tech Investor PRMTX primarily invests in securities of communications and technology companies. PRMTX advisors may use both growth and value approaches to make their investment decisions. The portfolio may consist of a relatively small number of holdings.
James Stillwagon has been the lead manager of PRMTX since November 2019. The three top holdings of the fund are Alphabet (7.3%), Meta (7.2%) and Netflix (7.2%).
PRMTX’s 3-year and 5-year annualized returns are 1% and 14.2%, respectively. Its net expense ratio is 0.77%. PRMTX has a Zacks Mutual Fund Rank #2.
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