In Tuesday’s Strategic Tech Investor, we showed you how to use mutual funds to get your start in tech investing.
Judging from all the comments and e-mails we received, the column was a big hit. It also attracted some follow-up questions.
The most common question was this one: “How do I buy these funds?“
As I said on Tuesday, I’m a firm believer in the adage that there’s no such thing as a bad question, so I thought I’d follow up with a column that answers that question – and several others – for you folks, too.
Strategic Tech Investor columns that truly help you are my favorite ones to write.
So let’s get started.
The Nitty Gritty
Mutual funds are a convenient way to hold a group of stocks. But they can be a little tricky to buy for the first time.
And it’s one of the reasons why I said, whenever possible go with exchange-traded funds (ETFs). They’re easier to buy and sell.
(In fact, as we told a number of you during the week, I did the ETF version of this “getting started in tech investing” in a column that we did back on Oct. 1. You can access that ETF column by clicking here.)
But as I said earlier this week, despite the zooming popularity of ETFs, many investors often find they can’t buy ETFs in their retirement accounts.
That means that mutual funds remain an excellent option. And lots of investors agree. Worldwide, there’s nearly $29 trillion invested in conventional mutual funds, up 10% from the year before, says the Investment Co. Institute, the key trade group for the fund industry.
So when you can’t invest in ETFs, mutual funds remain an excellent option. And today we’re going to walk you through the process of actually buying the three funds I told you about last week.
As part of my research, I spoke with each of the fund companies, checked with a brokerage house and studied the fund documents themselves. I did this to be sure there were several ways you can purchase these funds.
You can buy them from an array of brokerage houses. I also checked on the Website of my own brokerage house, saw that I could invest in all three funds online, as long as I purchased the minimum amount required.
In some cases, as we’ll see, you can even buy the fund directly from the sponsoring company.
Two final points before we start: First, most of these offerings have several “classes” of the same fund. Because I know we have an array of readers -some of you use professional money managers or full-service broker, while others use online-brokerage firms – I have provided details of all “classes” of each fund that I recommended.
Second, we have no connection with any of these fund firms. We’re a financial publisher – a company that provides top-notch investment research. I mention that because we derive no financial benefit from these recommendations.
I chose each of these funds based solely on their holdings. Given such trends as the “Mobile Wave,“ the “Internet of Everything,“”The Cloud“ and “The Age of Miracle Materials,“I know which sectors and which companies are poised to soar. So I looked for funds that are best-positioned from the growth opportunities that we’ve identified.
The three that we told you about were some of the best fund candidates we found – and for folks seeking a start as tech investors seemed to offer the best mix of upside potential, risk management and accessibility.
Let’s start with the easiest of the three, the T. Rowe Price Health Sciences Fund (PRHSX).
Facts About Funds
As fund firms go, T. Rowe Price Group Inc. (Nasdaq: TROW) is one of the best. And its Health Sciences offering is a straight up, no-load fund, meaning there’s no sales commission when you buy or sell.
To order from your broker, there is a $2,500 minimum. However, T. Rowe Price says individuals can buy the fund in an IRA directly from the firm with a $1,000 minimum order.
PRHSX has a net expense ratio of 0.79% a year. Though there’s no commission to buy, some brokers may charge a small fee if you close out the fund in less than 90 days. Mine charges $49.95 to do so.
You can contact the company directly through its Website-or by calling 800-207-9717.
The second fund we told you about, the Ivy Science and Technology Fund,can’t be purchased directly from the company.
But it does offer you two classes to choose from.
Many investors may find the “C Class“ more appealing. That class of fund shares has ticker symbol (WSTCX) and requires only a $500 minimum investment.
There is no sales commission to buy this class. However, you will be charged a 1% fee if you close out in less than a year. WSTCX has a net expense ratio of 2.07%.
The “A Class“(WSTAX) we talked about in the column on Tuesday is a very popular load fund. It has an up-front commission of 5.75% but a lower net expense ratio of 1.37%. The minimum purchase is $500.
Since the firm really isn’t set up to handle individual investors, I don’t suggest calling for more information. But you can get more details such as a fund fact sheet and prospectus from Ivy’s Website.
The third fund, the Rydex Series Trust Internet Fund, also offers investors several different classes and buying options.
The “individual” class is a no-load fund that can be purchased directly from Guggenheim Investments, the investment-management firm. The ticker symbol for this class is RYIIX.
You also can buy it from a brokerage firm without any transaction fee. Either way, as of this writing, the fund charges net management fees of 1.35%
To buy RYIIX for your IRA, the minimum purchase is $1,000. To buy it from your broker in a standard account, the minimum is $2,500. And to buy it directly from Guggenheim, you’ll need to start with $5,000.
Guggenheim says that investors who work with professional money managers often opt for the “A Class“ (RYINX) even though this is more expensive. It has a 4.75% commission and net annual costs of 1.6%.
For more information about the fund you can go to the company’s website or you can phone the firm at 800-820-0888.
A Look Back
Since we’re talking about “getting started,” let’s also take a look at the three exchange-traded funds that I told you about back on Oct. 1. I chose those three ETFs using the same parameters that helped me identify the mutual funds we talked about today.
In fact, those ETFs are three of my favorites.
If you want to read the column in full, simply click here. But I thought I’d take a moment to recap them for you now.
The SPDR S&PSoftware & Services Fund (NYSE:XSW)holds more than 160 stocks in its portfolio. And this ETF actually has more depth than its name implies.
In fact, it invests in such tech trends as e-commerce, social networking, data processing, Cloud computing, Big Data and information-technology consulting and services.
For its part, the First Trust NYSEArca Biotechnology Index (NYSE:FBT)is an ETF “double play.”It gives us exposure to clinical-stage firms at the cutting edge of science – but also offers the relative safety of established big-cap firms with solid cash flow and great profits.
Despite holding only 20 stocks, this mix makes it possible for FBT to hold a median market valuation of roughly $6.3 billion… meaning there’s plenty of upside opportunity.
With The First Trust IPOX-100 Index (NYSE:FPX), investors get to cash in on the surging market for initial public offerings (IPOs).
Consider that researcher Renaissance Capital places the total value of new issues last year at $54.9 billion. That’s up roughly 29.5% from the year before.
IPO investing is usually limited to high-net-worth investors – and those with great “connections” in the financial-services sector. But this ETF makes the IPO market accessible to the masses.
The one caveat is that it isn’t just a tech fund.
Instead, it offers a broad play on new issues. Tech and healthcare account for nearly a third of its holdings.
FPX also holds positions in finance, autos, retail, heavy industry and metals, and the portfolio contains about 100 stocks.
ETFs are easy to purchase: You buy them just like stocks.
Bringing It Home
Our objective with each of these two Strategic Tech Investor columns was to help you get started in tech investing. Perhaps you’re a complete newcomer to the investment markets. Or maybe you’re a veteran, but have taken a break from investing to buy a house, save for your son or daughter’s college education. Or you may be someone who’s had some bad luck, and must now play “catch up” to save for retirement.
Truth be told, we’ve heard from readers in all three of those situations. And they all ask the same question:
“Michael, you talk at length about how the tech sector can deliver superior returns. I believe you. But I don‘t have a lot of money, yet. And I need to know how to get started?“
With the six investments – three ETFs and three conventional mutual funds – that we’ve detailed in these two columns, we’ve done just that. You can use all six, or some combination of them, to start a tech portfolio. With some of the funds, you can even put yourself on an “automated’ investment program – for example, ordering the fund to take a set dollar amount from one of your bank accounts and invest it in the fund, on the same day of the month in each month of the year.
And you’ll be surprised how quickly it adds up.
All six of these funds can serve as great building blocks for a portfolio that will really help you build your net worth.
And that’s our wish for you.
Naturally, we don’t limit ourselves to ETFs and mutual funds. We’re always on the lookout for tech-focused companies whose shares have a big potential upside.
And we will continue to tell you about them as we take this journey together.
Have a great (and hopefully dry) weekend.
[Editor’s Note: As I hope today’s Strategic Tech Investor underscores, I welcome your comments – and your questions. And I read everything that you send me. My boss likes to see the comments, too. So if you like this service and feel it’s useful, take a few minutes to post a comment here and let us know. One other note: While today’s column was focused on ETFs, we haven’t given up on individual stocks. In fact, I’m working on some research right now that I hope to roll out for you folks in the next few columns. So please keep stopping by.]
- Strategic Tech Investor: We Hope You Own These.
- Strategic Tech Investor: Oct. 1, 2013: The Day That Made You Rich.