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The semiconductor market is staging a solid rebound after sales started nosediving in the second half of last year. Higher prices coupled with multiple geopolitical factors hurt sales last year after reaching unprecedented heights during the pandemic.

However, higher demand across multiple industries and cooling inflation are once again boosting sales. Given this situation, funds like Fidelity Select Semiconductors Portfolio (FSELX - Free Report), Putnam Global Technology Fund A Shs (PGTAX - Free Report), and Janus Henderson Global Technology and Innovation Fund (JNGTX - Free Report) are expected to benefit in the near term.

Semiconductor Sales Rebound

Global semiconductor sales totaled $134.7 billion in the third quarter, increasing 6.3% from the second quarter, the Semiconductor Industry Association (SIA) reported. In the second quarter, semiconductor sales totaled $124.5 billion, 4.7% higher than the first quarter of 2023.

On a month-over-month basis, semiconductor sales rose 1.9% in September.

This follows a 1.9% jump in August. Semiconductor sales have now increased for the seventh straight month. Although year-over-year sales were down 4.5% in the third quarter, demand is steadily growing, which is driving sales.

Regionally, semiconductor sales grew 2.4% in the Americas, 3.4% in Asia Pacific, 0.5% in China and 3% in Europe. This is the sixth consecutive month of increase in sales after an initial weakness witnessed at the beginning of the year.

Semiconductor sales started taking a hit from the second quarter of 2022, although the year proved to be great for overall sales. The decline in sales came as geopolitical factors like the Russia-Ukraine war and China’s slowing economy weighed heavy on the industry.

Moreover, the Federal Reserve’s monetary tightening campaign to curb multi-decade high inflation that saw the central bank hiking interest rates by 525 basis points since March 2022 weighed on the industry.

Industry experts had earlier predicted that global semiconductor sales would reach a low point by the end of the first quarter of 2023, followed by a rebound throughout 2023.

The consistently high demand for semiconductors is attributed to increased global adoption and widespread use of consumer electronics. Additionally, the growing impact of transformative technologies such as artificial intelligence, the Internet of Things, and machine learning continues to contribute to this demand across various industries.

3 Best Choices

We have, thus, selected three mutual funds with significant exposure to semiconductor producers carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) that are poised to gain from such factors. Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also on the likely future success of the fund.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds.

Fidelity Select Semiconductors Portfolio fund seeks capital appreciation. FSELX normally invests at least 80% of assets in common stocks of companies principally engaged in the design, manufacture, or sale of electronic components (semiconductors, connectors, printed circuit boards, and other components); equipment vendors to electronic component manufacturers; electronic component distributors; and electronic instruments and electronic systems vendors.

Fidelity Select Semiconductors Portfolio fund has a track of positive total returns for over 10 years. Specifically, FSELX’s returns over the three and five-year benchmarks are 26.6% and 26.5%, respectively. FSELX has a Zacks Mutual Fund Rank #1.

Putnam Global Technology Fund A Shs aims for capital appreciation. PGTAX invests primarily in common stocks of large and mid-size companies worldwide. Putnam Global Technology Fund Class A invests the majority of its assets in securities of companies in the technology industries.

Specifically, Putnam Global Technology Fund A Shs’returns over the three and five-year benchmarks are 5.9% and 14.6%, respectively. The annual expense ratio of 0.72% is lower than the category average of 1.05%. PGTAX carries a Zacks Mutual Fund Rank #2.

Janus Henderson Global Technology and Innovation Fund aims for long-term growth of capital and specializes in technology. JNGTX invests at least the majority of its net assets in securities of companies that the portfolio manager believes will benefit significantly from advances or improvements in technology.

Janus Henderson Global Technology and Innovation Fund has a track of positive total returns for over 10 years. Specifically, JNGTX’s returns over the three and five-year benchmarks are 3.6% and 12.5%, respectively. The annual expense ratio of 0.99% is lower than the category average of 1.05%. Janus Henderson Global Technology and Innovation Fund has a Zacks Mutual Fund Rank #1.

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