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3 Tech Mutual Funds to Buy on Chances of a Rate Hike Pause
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The latest report from the U.S. Department of Labor reveals that in August, the unemployment rate experienced a month-on-month increase to 3.8%. It surpassed the consensus estimate of 3.5% and marked a notable uptick from the observed rate of 3.5% in June. This indicates a softening of the labor market, which has garnered significant attention from policymakers at the Federal Reserve.
The Fed has played a crucial role in shaping market dynamics by responding to economic conditions. Since March 2022, the central bank has adopted a bold strategy of vigorously increasing short-term borrowing costs. This approach aims to tackle historically high inflation levels that have not been witnessed in over four decades. In its most recent action taken in July, the Fed raised its target range for the benchmark interest rate to 5.25%-5.50%. It is worth noting that the Federal Reserve targets to achieve a 2% inflation rate.
Given the reduced likelihood of interest rate hikes, it appears that growth-oriented tech companies are positioned for potential gains. This is because higher interest rates typically exert pressure on the future cash flows of tech companies, hindering their ability to reinvest in innovation and impeding their growth potential. When the interest rates rise, borrowing becomes more expensive for tech companies, leading to increased cash outflows and greater losses.
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) seeks capital appreciation. FSELX invests most of its assets in common stocks of companies principally engaged in the design, manufacture, or sale of electronic components.
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. (32.2%), Marvell Technology, Inc. (8.3%), and NXP Semiconductors N.V. (8.1%) as of May 31, 2023.
FSELX's 3-year and 5-year returns are 35.1% and 29.1%, respectively. The annual expense ratio is 0.69% compared with the category average of 1.05%. 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.
T. Rowe Price Science and Technology Fund (PRSCX - Free Report) seeks long-term capital growth by investing in common stocks of companies expected by T. Rowe Price to benefit from the development, advancement, and use of science and technology. PRSCX advisors invest in foreign stocks, futures and options.
Kennard W. Allen has been the lead manager of PRSCX since Dec 31, 2008. Most of the fund's holdings were in companies like Microsoft Corp. (10.7%), Alphabet Inc. (7.3%) and Salesforce, Inc. (6%) as of Mar 31, 2023.
PRSCX's 3-year and 5-year returns are 8.5% and 12.4%, respectively. The annual expense ratio is 0.84% compared with the category average of 1.05%. PRSCX has a Zacks Mutual Fund Rank #1.
DWS Science and Technology Fund (KTCAX - Free Report) seeks capital appreciation by investing most of its assets in common stocks of U.S. companies in the technology sector. KTCAX advisors use in-depth research to select a diverse portfolio of technology companies with robust and sustainable earnings growth, large and growing markets, leading products and services, and strong balance sheets.
Sebastian P. Werner has been the lead manager of KTCAX since Nov 30, 2017. Most of the fund's holdings were in companies like Microsoft Corp. (8.2%), NVIDIA Corp. (8%) and Apple Inc. (7.7%) as of Apr 30, 2023.
KTCAX's 3-year and 5-year returns are 10% and 15.5%, respectively. The annual expense ratio is 0.91% compared with the category average of 1.05%. KTCAX has a Zacks Mutual Fund Rank #1.
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3 Tech Mutual Funds to Buy on Chances of a Rate Hike Pause
The latest report from the U.S. Department of Labor reveals that in August, the unemployment rate experienced a month-on-month increase to 3.8%. It surpassed the consensus estimate of 3.5% and marked a notable uptick from the observed rate of 3.5% in June. This indicates a softening of the labor market, which has garnered significant attention from policymakers at the Federal Reserve.
The Fed has played a crucial role in shaping market dynamics by responding to economic conditions. Since March 2022, the central bank has adopted a bold strategy of vigorously increasing short-term borrowing costs. This approach aims to tackle historically high inflation levels that have not been witnessed in over four decades. In its most recent action taken in July, the Fed raised its target range for the benchmark interest rate to 5.25%-5.50%. It is worth noting that the Federal Reserve targets to achieve a 2% inflation rate.
Given the reduced likelihood of interest rate hikes, it appears that growth-oriented tech companies are positioned for potential gains. This is because higher interest rates typically exert pressure on the future cash flows of tech companies, hindering their ability to reinvest in innovation and impeding their growth potential. When the interest rates rise, borrowing becomes more expensive for tech companies, leading to increased cash outflows and greater losses.
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) seeks capital appreciation. FSELX invests most of its assets in common stocks of companies principally engaged in the design, manufacture, or sale of electronic components.
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. (32.2%), Marvell Technology, Inc. (8.3%), and NXP Semiconductors N.V. (8.1%) as of May 31, 2023.
FSELX's 3-year and 5-year returns are 35.1% and 29.1%, respectively. The annual expense ratio is 0.69% compared with the category average of 1.05%. 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.
T. Rowe Price Science and Technology Fund (PRSCX - Free Report) seeks long-term capital growth by investing in common stocks of companies expected by T. Rowe Price to benefit from the development, advancement, and use of science and technology. PRSCX advisors invest in foreign stocks, futures and options.
Kennard W. Allen has been the lead manager of PRSCX since Dec 31, 2008. Most of the fund's holdings were in companies like Microsoft Corp. (10.7%), Alphabet Inc. (7.3%) and Salesforce, Inc. (6%) as of Mar 31, 2023.
PRSCX's 3-year and 5-year returns are 8.5% and 12.4%, respectively. The annual expense ratio is 0.84% compared with the category average of 1.05%. PRSCX has a Zacks Mutual Fund Rank #1.
DWS Science and Technology Fund (KTCAX - Free Report) seeks capital appreciation by investing most of its assets in common stocks of U.S. companies in the technology sector. KTCAX advisors use in-depth research to select a diverse portfolio of technology companies with robust and sustainable earnings growth, large and growing markets, leading products and services, and strong balance sheets.
Sebastian P. Werner has been the lead manager of KTCAX since Nov 30, 2017. Most of the fund's holdings were in companies like Microsoft Corp. (8.2%), NVIDIA Corp. (8%) and Apple Inc. (7.7%) as of Apr 30, 2023.
KTCAX's 3-year and 5-year returns are 10% and 15.5%, respectively. The annual expense ratio is 0.91% compared with the category average of 1.05%. KTCAX has a Zacks Mutual Fund Rank #1.
Want key mutual fund info delivered straight to your inbox?
Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>