The tech-heavy NASDAQ composite has risen 23.4% in the past year compared with 19.6% and 13.0% rise of the S&P 500 and the Dow, respectively. The NASDAQ 100 Technology Sector Index has risen 21.8% in the same period. Due to a boom in artificial intelligence, machine learning and related sectors, the tech industry in the United States has given investors handsome returns since 2023. Investors who had parked their money in tech stocks have earned attractive returns owing to the recent advancement in the industry.
Due to the constant need for development, technology companies are generally interest rate sensitive. Costs incurred in research and development, and other related expenditures are generally high. The Federal Reserve’s stance to counter inflation by keeping interest rates high for longer has led to a high borrowing cost. This has created major challenges in tech companies’ path to profitability.
However, due to favorable macroeconomic data and the presidential election in the fall, investors are expecting an interest rate cut in September. The Consumer Price Index in June saw a dip for the first time in more than four years owing to cheaper gasoline prices and moderating rents. Monthly CPI fell 0.1%, whereas on a yearly basis, inflation increased by 3%. Unemployment is steadily ticking up, and job creation is slowing down. Nonfarm payrolls rose by 206,000 in June compared to the revised target of 218,000 in May, while the unemployment rate breached 4% for the first time in over two years in June.
The current overnight interest rate is in the range of 5.25-5.50%, the highest in 23 years. Though Fed Chair Jerome Powell said that the central bank is not yet confident of cutting the overnight interest rate as of now, it will consider if the inflation trend stays toward its 2% target. All eyes will be on the upcoming Federal Open Market Committee meeting on Jul 30-31.
The future of the tech industry remains optimistic. The new wave of regenerative artificial intelligence, machine learning, cloud computing, the Internet of Things and robotics are also expected to drive growth among tech stocks. It will be prudent to invest in mutual funds, having tech companies as their holdings for better returns in the long run.
We have thus selected three mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy), have positive three-year and five-year annualized returns and minimum initial investments within $5000, and carry a lower expense ratio of less than 1%. Notably, mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Fidelity Advisor Semiconductors (FELIX – Free Report) invests most of its assets in common stocks of both foreign and domestic companies that are primarily engaged in the design, manufacture, or sale of semiconductors and semiconductor equipment. FELIX advisors make investment decisions based on fundamental analysis of factors like financial condition and industry position, as well as market and economic conditions.
Adam Benjamin has been the lead manager of FELIX since Mar 15, 2020. Most of the fund’s exposure was in companies like NVIDIA (24.8%), NXP Semiconductors (6.7%) and Micron Technology (6.4%) as of Apr 30, 2024.
FELIX’s three-year and five-year annualized returns are nearly 28.8% and 37.3%, respectively. FELIX has an annual expense ratio of 0.73%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Fidelity Advisor Technology (FADTX – Free Report) invests most of its net assets in common stocks of domestic and foreign companies that are principally engaged in offering, using, or developing products, processes, or services that will provide or benefit significantly from technological advances and improvements. FADTX advisors choose to invest in stocks based on fundamental analysis factors like financial condition and industry position, along with market and economic conditions.
Adam Benjamin has been the lead manager of FADTX since Jul 19, 2020. Most of the fund’s exposure was in companies like NVIDIA (19.0%), Microsoft (16.5%) and Apple (12.3%) as of Apr 30, 2024.
FADTX’s three-year and five-year annualized returns are 13.2% and 25.6%, respectively. FADTX has an annual expense ratio of 0.96%.
DWS Science and Technology (KTCSX – Free Report) fund invests most of its assets along with borrowings, if any, incommon stocks and initial public offerings of domestic science and technology companies, irrespective of their market capitalization. KTCSX advisors may also invest in foreign companies from the technology sector or other industries within the technology sector from developed and emerging market economies.
Sebastian P. Werner has been the lead manager of KTCSX since Nov 30, 2017. Most of the fund’s exposure was in companies like Microsoft (9.5%), NVIDIA (9.2%) and Meta Platforms (8.8%) as of Apr 30, 2024.
KTCSX’s three-year and five-year annualized returns are 10.9% and 21.4%, respectively. KTCSX has an annual expense ratio of 0.68%.
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