March 5, 2024

2 Communication Services Funds to Buy as the Sector Booms – February 8, 2024

Communication Services was one of the best-performing sectors in 2023, just behind the broader tech sector that it is part of. As of January 2024, the sector grew 39.1% over the prior 12 months and jumped 4.5% in January itself.

This relatively new sector was created in 2018 by taking some of the erstwhile FANG stocks and joining them with the telecom sector. Companies in the media, entertainment, interactive gaming, information creation and information distribution businesses also belong to the communications sector.

Many companies in this segment are, by nature, economically sensitive. The sector includes high-growth, cyclical stocks of companies that see massive decline in demand when an economy enters a downturn. However, the sector also comprises some much less economically sensitive companies that are defensive in nature, like mobile phone and home Internet services.

Over the past year, the sector has done very well primarily because of its close link to the tech sector and the AI optimism that has led to its resurgence. With the Fed finally loosening its grip on the monetary policy, recession fears have taken a bit of a backseat, which can only aid the sector.

Also, communications services has had a great start to the first-quarter 2024 earnings season amid otherwise disappointing results. While broadly, S&P 500 companies have reported a 1.4% year-over-year decline in earnings per share (EPS) in the quarter, communication services has reported the highest earnings growth of any sector so far, with EPS up 40.4% from a year ago as of Feb 2.

Funds focused on stocks from this diverse group, thus, provide a great opportunity to investors looking to add solidity and fast growth to their portfolio.

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 two such communication services mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy), 2 (Buy), have positive 5-year and 10-year annualized returns, minimum initial investments within $5000 and carry a low expense ratio.

DWS Science and Technology (KTCAX Free Report) 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. Three top holdings for the fund are Meta (8.2%), Alphabet (5.5%) and Broadcom (4.7%).

KTCAX’s 5-year and 10-year annualized returns are 20.6% and 14.2%, respectively. Its net expense ratio is 0.91% compared with the category average of 1.05%. KTCAX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

T. Rowe Price Comm & Tech Investor (PRMTX Free Report) primarily invests in securities of communications and technology companies. PRMTX advisors may use both growth and value approaches to arrive at 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. Three top holdings for the fund are Meta (7.5%), Alphabet (7.3%) and T-Mobile U.S. (5.1%).

PRMTX’s 5-year and 10-year annualized returns are 13.3% and 11.8%, respectively. Its net expense ratio is 0.77% compared to the category average of 0.89%. PRMTX has a Zacks Mutual Fund Rank #2.

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