3 Funds to Buy Amid Solid Growth in Semiconductor Revenues

The semiconductor industry has been growing over the past couple of years but things seem to be changing slightly as geopolitical tensions, currency fluctuations and weak demand in the consumer end-market pose fresh challenges. The supply-chain crisis has been existing since mid-2020 when shipments got stalled following the COVID-induced lockdowns.

However, the market is growing as higher demand for semiconductors is driving sales, which is eventually helping manufacturers garner more revenues. Thus, funds like Fidelity Advisor Semiconductors Fund Class I FELIX, Putnam Global Technology Fund Class A PGTAX and Fidelity Select Semiconductors Portfolio FSELX are likely to benefit in the near term.

Semiconductor Sales Grow on Higher Demand

Demand for semiconductors has been soaring since the outbreak of the pandemic, which over the past couple of years has seen revenues reaching dizzying heights. According to the latest report from the Semiconductor Industry Association (“SIA”), global semiconductor sales rose 7.3% on a year-over-year basis in July to $49 billion from $45.7 billion a year ago.

However, sales decreased marginally by 2.3% sequentially in July. The decline in monthly sales is a recent thing as the industry is facing several challenges. COVID-induced lockdowns in China have further intensified the supply-chain crisis.

Also, as people are finally going back to offices and businesses are reopening, demand for PCs, which heightened during the peak of the pandemic, is again on the decline, directly impacting sales.

Even then, sales have been on the rise year over year, which is a good sign. SIA said that the jump in sales could be attributed to growth in the use of consumer electronics goods around the world. Demand for semiconductors is also getting a boost from the development of artificial intelligence, the Internet of Things, and machine learning technologies.

Besides, the semiconductor industry should get a boost from the recently passed CHIPS and Science Act of 2022. The act aims at enhancing semiconductor production and making the United States self-reliant. The $280 billion package will include subsidies and cash for research.

Another $52 billion in incentives is included in the act for American semiconductor producers. As a result, semiconductor production should grow dramatically. Additionally, the act would grant semiconductor companies a $24 billion investment tax credit.

Our 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).

Fidelity Advisor Semiconductors Fund Class I seeks capital appreciation. FELIX invests primarily in common stocks. Fidelity Advisor Semiconductors Fund Class I normally invests at least 80% of assets in securities of companies principally engaged in the design, manufacture, or sale of electronic components; equipment vendors to electronic component manufacturers; electronic component distributors; and electronic instruments and electronic systems vendors.

Fidelity Advisor Semiconductors Fund Class I has a track of positive total returns for over 10 years. Specifically, FELIX’s returns over the three and five-year benchmarks are 27.5% and 23.9%, respectively. Fidelity Advisor Semiconductors Fund Class I 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.

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 16.9% each. Putnam Global Technology Fund Class A carries a Zacks Mutual Fund Rank #2. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

Fidelity Select Semiconductors Portfolio fund seeks capital appreciation. FSELX normally invests at least 80% of its 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 27.9% and 24.4%, respectively. Fidelity Select Semiconductors Portfolio fund 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.

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