The semiconductor industry has been trying to rebound as sales continue to grow over the past few months. According to the Semiconductor Industry Association (SIA), global chip sales rose for the third straight month in May.
This comes after the industry started taking a hit in the second half of 2022, which continued till the end of the first quarter. However, experts had predicted that sales would bottom by the end of the first quarter before making a solid recovery. Given that the rebound seems to have started, funds like Putnam Global Technology Fund Class A PGTAX, Fidelity Advisor Semiconductors Fund FELAX and Fidelity Select Semiconductors Portfolio FSELX are likely to benefit in the near term.
Semiconductor Sales Rebounding
The SIA said earlier this month that global semiconductor sales jumped 1.7% month over month in May to $40.7 billion compared to April’s total of $40 billion. Semiconductor sales have now increased for three consecutive months but are still down 21.1% globally year over year.
The report also mentioned that sales rebounded across all regions. Sales grew 3.9% in China and 2% in Europe. In Asia Pacific/Others, Americas and Japan, sales increased 1.3%, 0.1% and 0.4%, respectively.
Semiconductor sales soared during the peak of the pandemic, which saw demand for PCs and communication devices, electronic goods and video games jumping as more people worked remotely.
However, this surge in demand, combined with supply-chain disruptions caused by lockdowns, resulted in a global shortage of semiconductors.
This shortage has had a widespread impact on various industries, including automobiles, power, lighting and electronics. The shortage has caused turmoil and challenges in meeting the demands of these industries, affecting production and supply-chains globally.
The supply-chain crisis eased in 2022 but is hurting sales this year. This is due to several factors, like rising prices owing to the Fed’s decision to increase interest rates to bring down inflation, geopolitical tensions and the after-effects of the pandemic.
Even then, 2022 turned out to be a notable year for the industry. Despite the challenges, the industry experienced growth, with sales increasing by 3.2% to reach $573.5 billion, up from $555.9 billion in 2021.
The recent jump in sales bodes well for the industry. Demand for semiconductors is expected to soar in the near term due to the widespread adoption and increased use of consumer electronics worldwide, the growing presence of artificial intelligence, the Internet of Things and machine learning technologies.
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 (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Putnam Global Technology Fund Class A 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, PGTAX’s returns over the three and five-year benchmarks are 13.3% and 14.8%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
PGTAX carries a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.83%, which is below the category average of 1.05%.
Fidelity Advisor Semiconductors Fund has a track of positive total returns for over 10 years. Specifically, FELAX’s returns over the three and five-year benchmarks are 31.2% and 23.3%, respectively. To see how this fund performed compared to its category, and other #1 or 2 Ranked Mutual Funds, please click here.
FELAX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.01%, which is below the category average of 1.05%.
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 33.3% and 24.7%, respectively. To see how this fund performed compared to its category, and other #1 or 2 Ranked Mutual Funds, please click here.
FSELX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.69%, which is below the category average of 1.05%.
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