Although, a higher rate environment is likely to weigh on tech stocks, Trump's tax repatriation plans could benefit technology companies that hold a lot of cash overseas. These tech companies could repatriate the reserves and for further use in investments, dividends and buybacks. In this context, investing in mutual funds from the technology sector still seems prudent.
Technology Sector's Performance in 2017
Factors Contributing to Tech Gains
A strengthening economy and better job prospects provided a significant boost to economically sensitive growth sectors like technology that typically perform well in a maturing economic cycle. Moreover, the Tax Cuts and Jobs Act of 2017 lowers the corporate tax rate to 21% from 35%, per recent developments. Lower corporate tax will encourage tech companies to raise investment in new cloud services and data centers.
Further, Trump's tax repatriation policy, which contains a one-time tax of 8% on illiquid overseas assets, is likely to improve the overall financial health of tech companies. The law also sets a 15.5% one-time tax on cash and cash equivalents held overseas, which in turn will help tech giants like Apple Inc. (AAPL – Free Report) , which has overseas cash of more than $250 billion at the end of the fiscal fourth quarter.
