The latest Consumer Price Index (CPI) report for June indicated a year-over-year increase of 3%, the lowest inflation rate in three years. This suggests that inflation is approaching the Federal Reserve’s target of 2%, paving the way for a decrease in interest rates. According to the CME FedWatch tool, there is a 93.3% probability of a Fed rate cut in September.
The recent retail sales figures released on Tuesday supported this outlook. June retail sales remained unchanged, showcasing consumers’ resilience and boosting the growth prospects for the second quarter. This strengthens the belief that the Fed may indeed begin reducing rates in September as inflation cools down. As per the data released by the U.S. Census Bureau, retail sales saw a year-over-year increase of 2.3% in June. It is worth noting that this growth has slowed compared to the 7.7% surge recorded back in January 2023.
With expectations shifting from interest rate hikes, it appears that technology companies focused on growth are well-positioned for growth. This is because higher interest rates tend to put pressure on tech firms’ future cash flows, limiting their ability to invest in innovation and impeding their growth potential. As interest rates rise, borrowing costs escalate for tech companies, resulting in increased cash outflows.
From an investment standpoint, we have selected three tech mutual funds, which are expected to hedge one’s portfolio against any economic downturn and provide attractive returns. Mutual funds, in general, reduce transaction costs and diversify the portfolio without commission charges mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
These mutual funds, by the way, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive three-year and five-year annualized returns, minimum initial investments within $5000, and carry a low expense ratio.
Fidelity Select Semiconductors Portfolio (FSELX – Free Report) primarily invests in securities of semiconductors and related companies. The markets for semiconductors are widely influenced by the communication services sector. FSELX advisors use fundamental analysis of factors like each issuer’s financial condition and industry position to arrive at their investment decision.
Adam Benjamin has been the lead manager of FSELX since Mar 15, 2020. Most of the fund’s holdings were in companies like NVIDIA Corp. (24.1%), NXP Semiconductors N.V. (7.7%) and ON Semiconductor Corp (7%) as of Feb 29, 2023.
FSELX’s 3-year and 5-year returns are 30.4% and 38.4%, respectively. The annual expense ratio is 0.67% compared with the category average of 1.24%. FSELX has a Zacks Mutual Fund Rank #1.
To see how this fund performed compared to its category and other 1 and 2 Ranked Mutual Funds, please click here.
DWS Science and Technology Fund (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 Nov 30, 2017. Most of the fund’s holdings were in companies like Microsoft Corp. (9.5%), NVIDIA Corp. (9.2%) and Meta Platforms, Inc. (8.8%) as of Apr 30, 2024.
KTCAX’s 3-year and 5-year returns are 10.7% and 21.1%, respectively. The annual expense ratio is 0.87% compared with the category average of 1.02%. KTCAX has a Zacks Mutual Fund Rank #1.
T. Rowe Price Science and Technology Fund (PRSCX – Free Report) seeks long-term capital growth by investing in common stocks of companies expected by T. Rowe Price to benefit from the development, advancement, and use of science and technology. PRSCX advisors invest in foreign stocks, futures and options.
Anthony Wang has been the lead manager of PRSCX since Oct 1, 2023. Most of the fund’s holdings were in companies like Microsoft Corp. (10.7%), NVIDIA Corp (10.6%) and Meta Platforms, Inc. (9.9%) as of Mar 31, 2023.
PRSCX’s 3-year and 5-year returns are 4.7% and 17.6%, respectively. The annual expense ratio is 0.81% compared with the category average of 1.05%. PRSCX has a Zacks Mutual Fund Rank #2.
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