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The struggles for the semiconductor industry appear to be slowly coming to an end. Easing price pressures is helping demand for semiconductors rebound after a tough 2023. Also, optimism surrounding artificial intelligence (AI) is triggering demand for chips.

The Semiconductor Industry Association (SIA) reported that global semiconductor sales totaled $137.7 billion in the first quarter, increasing 15.2% year over year. However, sales decreased 5.7% from the fourth quarter of 2023.

The decline, SIA said, is temporary and can be attributed to seasonal trends. John Neuffer, SIA president and CEO, said, “First-quarter global semiconductor sales were significantly higher than the total from the first quarter of last year, but sales slipped somewhat on a month-to-month and quarter-to-quarter basis, reflecting normal seasonal trends.”

The Federal Reserve’s monetary tightening campaign in its bid to check 40-year-high inflation saw borrowing rates soaring. Semiconductor Sales started shrinking despite high demand as price pressures posed a major challenge for several industries that use semiconductors.

However, inflation has cooled substantially over the past year, easing price pressures. This is again helping demand rebound. Sales are still lower than the pandemic-era record highs but are expected to grow in the coming months.

The SIA expects semiconductor sales to grow in double digits for the rest of 2024. Also, the enthusiasm surrounding AI is driving demand, which is likely to grow further.

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 (FSELX - Free Report) 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 29.5% and 35.8%, respectively. The annual expense ratio of 0.68% is lower than the category average of 1.23%. FSELX has a Zacks Mutual Fund Rank #1.

Janus Henderson Global Technology and Innovation Fund (JNGTX - Free Report) aims for long-term growth of capital and specializes in technology. JNGTX invests 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 9.3% and 19.2%, respectively. The annual expense ratio of 0.80% is lower than the category average of 1%. JNGTX has a Zacks Mutual Fund Rank #2.

DWS Science and Technology A (KTCAX - Free Report) fund seeks growth of capital. Under normal circumstances, KTCAX invests at least 80% of net assets in common stocks of U.S. companies in the technology sector.

DWS Science and Technology A fund has a track of positive total returns for over 10 years. Specifically, KTCAX’s returns over the three and five-year benchmarks are 12.3% and 20.5%, respectively. The annual expense ratio of 0.90% is lower than the category average of 1.03%. KTCAX sports a Zacks Mutual Fund Rank #1.

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