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3 Solid Funds to Buy on Surging Semiconductor Revenues

The semiconductor industry has continued its upward trend in 2022 although a supply crunch has crippled a number of sectors dependent on semiconductors. Higher demand for semiconductors is giving a boost to semiconductor revenues almost every month, which is a good sign given that this has made several manufacturers ramp up production to meet the surging demand.

Semiconductor demand is also growing because of its increased use in consumer electronics, automotive, networking and communication equipment, and other products. This has been helping the industry grow at a faster pace over the past couple of years. 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 Rise

The Semiconductor Industry Association (SIA) said on Jun 6 that semiconductor revenues continued to grow at a rapid pace in May. According to SIA, worldwide semiconductor revenues jumped 18% in May to $51.8 billion from $43.9 billion a year ago.

On a month-over-month basis, semiconductor revenues grew 1.8% in May from April’s sales of $50.9 billion. Semiconductor sales have been increasing at a solid pace over the past couple of years. Last year was particularly good as demand saw a steady surged.

This has seen semiconductor revenues increase more than 20% for the 14th consecutive month now. Additionally, the report noted that sales rose month over month and year over year across all regions.

Sales rose 36.9% in the Americas, 19.8% in Japan, 16.1% in Europe, 15.8% in the Asia Pacific, and 9.1% in China in May when compared to the same month last year.

Demand for semiconductors has increased as the Internet of Things (IoT), artificial intelligence (AI), and virtual reality continue to gain popularity. This is eventually translating into larger revenues for semiconductor producers.

These cutting-edge technologies cannot be developed without semiconductor technology. As a result, it is anticipated that semiconductor demand will increase in the near future as the need for these services grows.

Additionally, the rising demand for 5G devices is helping to boost semiconductor sales, with unit output more than tripling to 555 million in 2021 from 250 million in 2020.

The pandemic also helped the semiconductor sector since more people stayed at home to work and study, increasing demand for electronic goods, networking, and communication equipment. Sales of semiconductors rose as a result of this sudden surge in demand.

However, a large number of industries are now suffering owing to the shortage in semiconductor supply. The challenge now is to meet the growing demand. Although many semiconductor manufacturers have ramped up production, the supply crisis is far from over, and it is anticipated that the issue will persist for the remainder of the year.

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 36.7% and 24.1%, 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 20.5% and 17.7%, respectively. 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 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 37% 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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