4 Tech-Heavy Funds to Watch

Technology stocks have triumphed in 2023. The Morningstar US Technology Index increased 36% for the year to date through September, which was among the best sector performances as investors embraced new technologies like artificial intelligence. These gains followed a brutal showing for technology stocks in 2022 when they fell 32% amid rising interest rates. Such volatile results highlight the possible risks of these equities, so it’s important to know which funds own a lot of them. Here are four diversified stock funds with large technology weightings compared with their respective Morningstar Categories.

Brown Capital Management Small Company BCSIX

The portfolio had 60% of assets in technology stocks as of June 2023, compared with the typical small-growth Morningstar Category peer’s 24%. The strategy’s investment process explains why its six managers favor this area of the market. They look for companies with products or services that save time, lives, money, or headaches for their customers. These criteria led them to the strategy’s top positions AppFolio APPF and Manhattan Associates MANH, which offer software solutions for property management firms and wholesale retailers, respectively. The portfolio’s 54% exposure to application software companies dwarfed the average peer’s 5%.

Morgan Stanley Institutional Growth MSEGX

The strategy had 56% of its assets dedicated to technology companies as of June 2023 versus the average large-growth category peer’s 38%. Manager Dennis Lynch and his team prefer companies with defensible business models that dominate their markets or benefit from a strong network effect. They also tend to seek smaller, industry-disrupting firms that have more growth potential than the typical large-growth stalwarts. The portfolio’s top five positions are technology companies that account for nearly 40% of assets, such as Uber Technologies UBER, The Trade Desk TTD, and Shopify SHOP. These three positions contribute to the strategy’s application software exposure, which was 41% versus the typical peer’s 3%.

Baron Global Advantage BGAFX

The portfolio had 50% in technology stocks as of September 2023, while the typical global large-stock growth category peer had 28%. Manager Alex Umansky has few boundaries in his search for the world’s best growth stocks, which can sometimes lead to outsize sector allocations, like technology. Over his 11-year tenure, he has overweighted technology stocks by an average of 19 percentage points versus the MSCI ACWI Growth Category Index. Umansky prefers businesses with durable competitive advantages and viable profit opportunities that come from solving key problems or delivering superior solutions. Chief among them is Nvidia NVDA, which was the portfolio’s largest position at 9.3% of assets in September 2023. Other top technology holdings include Shopify and Snowflake SNOW.

Artisan Small Cap ARTSX

The strategy had 46% of assets in technology firms as of June 2023, which was nearly double the average small-growth category fund. The strategy’s managers look for businesses that are poised to grow profits, either through internal catalysts like new products or external ones like changing demographics. They’re also willing to pay high prices for these companies’ potentially promising futures. The managers’ criteria often lead them to technology stocks, particularly semiconductors. Lattice Semiconductor LSCC and Monolithic Power Systems MPWR were among the fund’s largest positions as of June 2023 at 8.4% and 4.2% of assets, respectively. The portfolio’s overall exposure to semiconductors was 16%, which topped the typical small-growth peer’s 3%.