A recent report from the Commerce Department pointed out an uptick in inflation. This could lead the Federal Reserve to keep interest rates unchanged. Since July, the central bank has held its policy rate within the range of 5.25-5.50%. It has increased the interest rate by 525 basis points since March 2022.
Given the reduced likelihood of interest rate hikes, it seems that tech companies focused on growth are positioned for potential gains. This is because when interest rates go up, usually the expected earnings of tech firms are affected, making it harder for them to invest in ideas and limiting their chance to grow. As interest rates rise, borrowing money becomes pricier for tech companies, resulting in money being drained out and higher losses.
According to the Commerce Department, PCE inflation rose 2.7% year over year in March, surpassing the consensus estimate of a rise of 2.6%. Fed officials are expected to keep interest rates steady for now. This scenario might benefit tech funds as they could profit from consumer spending on tech-related items and services.
When excluding elements like food and energy, core inflation remained unchanged, with a 0.3% increase in the PCE price index for March. Year-on-year core inflation was 2.8%, indicating pricing for goods and services.
Consumer spending, which plays a vital role in driving the growth of the economy, saw a 0.8% increase in March, indicating sustained demand for technology products and services. Despite the impact of rising inflation, personal income went up 0.5%, primarily due to higher wages in a competitive job market. These trends bode well for tech funds.
Thus, despite uncertainties and inflationary pressures, investing in technology funds is seen as a smart choice. These funds offer stability, growth opportunities, and exposure to an industry set for innovation. Technology mutual funds are well-positioned to provide returns over the long term.
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) fund invests most of its net assets in common stocks of domestic and foreign companies that are principally engaged in the design, manufacture, or sale of semiconductors and semiconductor equipment. FSELX 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 FSELX since Mar 15, 2020. Most of the fund’s holdings were in companies like NVIDIA Corp. (24.5%), NXP Semiconductors N.V. (9.1%), and ON Semiconductor Corp (7.5%) as of Nov 30, 2023.
FSELX’s 3-year and 5-year returns are 29.5% and 35.8%, respectively. The annual expense ratio is 0.68%. 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) 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 NVIDIA Corp. (11%), Microsoft Corp. (10.3%) and Meta Platforms, Inc. (8.7%) as of Jan 1, 2024.
KTCAX’s 3-year and 5-year returns are 12.3% and 20.5%, respectively. The annual expense ratio is 0.90%. KTCAX has a Zacks Mutual Fund Rank #1.
Janus Henderson Glb Tech and Innovt D (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.
Jonathan Cofsky has been the lead manager of JNGTXsince Feb 28, 2022. Most of the fund’s holdings were in companies like Microsoft Corp. (11.1%), NVIDIA Corp. (7.6%) and Apple Inc. (5.8%) as of Dec 31, 2023.
JNGTX’s 3-year and 5-year returns are 9.3% and 19.2%, respectively. The annual expense ratio is 0.80%. JNGTX has a Zacks Mutual Fund Rank #2.
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