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3 Tech Funds to Dump on Dismal Apple Earnings

Disappointing earnings results from tech bellwether Apple Inc. (AAPL) intensified concerns over first-quarter technology earnings, which also had significant impact on the tech heavy index, Nasdaq, and the technology sector. While the broad S&P 500 technology sector – Technology Select Sector SPDR ETF (XLK) – turned up as the worst performer among the S&P 500 sectors on Wednesday following a 6.3% decline in Apple’s shares. Shares of the tech giant dropped for the sixth straight session yesterday by another 3.1%. This marks Apple’s longest losing stretch in three years.

Not only the technology sector, even overall first-quarter earnings results were affected by dismal results from tech giants like Apple. As of April 27, we have results from 209 S&P 500 members that combined account for 52.4% of the index’s total market capitalization. Total earnings for these members are down 5.5% from the same period last year on 1.6% lower revenues. Meanwhile, total earnings for technology companies that reported results as of Wednesday are down 8.1% from the same period last year on 0.4% lower revenues.

Against this backdrop, we have highlighted three unfavorably ranked mutual funds that may be affected by the disappointing earnings picture and dropping of which may prove ideal in the current scenario. But before that, let’s go to the details of first-quarter results.

Weaker iPhone Sales Weigh on Apple’s Earnings

Apple’s iPhone sales witnessed the first year-on-year decline ever and its China sales dropped, which negatively impacted its fiscal second-quarter earnings results. While total iPhone sales came in at 51.2 million units, down 16% from the year-ago level, revenues from the segment declined to $32.857 billion from $40.282 billion reported last year. Volume of iPhone sales also came in lower than the expectation of 51.5 million units. iPhone sales account for about 60% of Apple’s total revenue.

Moreover, sales in China came in at $12.486 billion for the quarter, registering a 32% drop from $18.373 billion in the previous quarter. This also reflects a 26% fall from the same quarter last year. Weak China sales were behind Apple’s 13% year-over-year revenue decline to $50.6 billion. In fact, Apple’s revenues decreased for the first time in 13 years. Its quarterly revenues were also short of the Zacks Consensus Estimate of $51.5 billion. Meanwhile, quarterly earnings of $1.90 per share missed the Zacks Consensus Estimate of $1.97 and declined from the year-ago earnings of $2.33 per share.

Results from Other Tech Giants Also Disappoint

Another tech behemoth, Alphabet Inc. (GOOGL) also reported lower-than-expected first-quarter earnings, dampening investor sentiment. The company’s revenue net of total traffic acquisition cost or TAC came in at $16.47 billion, down 4.7% sequentially, up 18.4% year over year and roughly in line with the Zacks Consensus Estimate. GAAP earnings of $6.02 a share were down from $7.06 in the previous quarter, and below the Zacks Consensus Estimate of $6.36.

Meanwhile, Microsoft Corporation’s (MSFT) adjusted fiscal third-quarter earnings of 62 cents per share missed the Zacks Consensus Estimate of 63 cents. It was also lower than previous quarter’s earnings per share of 78 cents. Also, reported revenue of $20.53 billion was down 13.7% sequentially and 5.5% year over year. Revenues also missed the Zacks Consensus Estimate by 5.0%. Moreover, the company said that forex would have a negative 3-point impact on revenue growth in the fourth quarter of fiscal 2016.

International Business Machines Corporation (IBM) reported first-quarter non-GAAP earnings per share of $2.35 and revenues of $18.684 billion, which declined 19.2% and 4.6%, respectively, year on year. This was IBM’s 16th successive quarter of revenue decline. Moreover, Yahoo’s (YHOO) first-quarter net revenue was down 14.4% sequentially and 17.6% year over year. Also, Yahoo’s GAAP net loss was $99.2 million, or 10 cents per share. In the year-ago quarter the company had reported net income of $21.2 million, or 2 cents per share.

3 Technology Mutual Funds to Dump

Below are three technology mutual funds that carry either a Zacks Mutual Fund Rank #4 (Sell) or #5 (Strong Sell). These funds also have Apple in their top holdings and may thus be affected by the continued decline in company’s shares. Moreover, these funds have high expense ratios and lost significantly over the year-to-date as well as one-year time frames.

Goldman Sachs Technology Opportunities C (GITCX) is expected to maintain a portfolio of equity securities of 30 to 40 tech companies. GITCX may invest not more than 25% of its assets in securities of foreign companies.

Currently, GITCX carries a Zacks Mutual Fund Rank #4. The product has lost 4% and 3% over the year-to-date and one-year frames, respectively. Annual expense ratio of 2.23% is higher than the category average of 1.45%. As of March 31, 2016, Apple occupies the top spot in GITCX’s portfolio with 7.99% of its assets invested in the company.

Invesco Technology C (ITHCX) invests a large chunk of its assets in common stock of companies involved in operations related to the technology sector.

Currently, ITHCX carries a Zacks Mutual Fund Rank #5. The product has lost 9.5% and 8.7% over year-to-date and one-year frames, respectively. Annual expense ratio of 2.15% is higher than the category average of 1.45%. As of December 31, 2015, Apple occupies the top spot in ITHCX’s portfolio with 7.61% of its assets invested in the company.

Firsthand Technology Opportunities (TEFQX) invests a major portion of its assets in securities of companies that uses a high level of technology to offer products and services. These are commonly known as high-technology companies. TEFQX may also invest in comparatively younger firms.

Currently, TEFQX carries a Zacks Mutual Fund Rank #5. The product has lost 6.9% and 15.4% over year-to-date and one-year frames, respectively. Annual expense ratio of 1.85% is higher than the category average of 1.45%. As of December 31, 2015, Apple occupies the second spot in TEFQX’s portfolio with 5.8% of its assets invested in the company.

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 help of Zacks Rank.


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