4 Mutual Funds to Tap the Boom in Semiconductor Space

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The stay-at-home trend has put semiconductors in a sweet spot since the pandemic hit, thanks to the perked-up demand for laptops, PCs, video games, smart phones, data centers and now smart cars. Despite headwinds faced due to trade restrictions, the uptick in demand for gaming chips, cloud computing and data center business is sure to boost semiconductor companies in the United States.

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Even with the gradual reopening in place, several trends that people were forced to adapt will be here for another decade or so. At-home entertainment options, especially streaming and gaming, are here to stay and drive chip makers. Per a Mordor Intelligence report, the global gaming market is set to see a CAGR of 10.5% from 2021 to 2026 and this will fuel demand for semiconductors.

Along with that, the automobile sector is evolving into a more electronic component dependent market with major carmakers planning to convert fleets into electric vehicles. In fact, per IHS Markit’s predictions, auto sales are likely to pick up this year with global light vehicle sales estimated to increase 9% to 83.4 million in 2021.

The massive digitization across the healthcare, transport, financial systems, defense, agriculture and retail sectors is a boon for the semiconductor industry. The International Data Corporation predicts that the global semiconductor market is expected to increase 7.7% to $476 billion in 2021, after rising 5.4% in 2020. Per a report by the Semiconductor Industry Association, the global semiconductor industry sales jumped 14.7% year over year to $39.6 billion in February 2021.

Additionally, several mergers and acquisitions activities have aided the sector in recent times and will continue to do so this year. So far this year, the iShares PHLX Semiconductor ETF (SOXX) has added 16.6% in comparison to the S&P 500 and the Nasdaq’s 9.9% and 7.5% addition, respectively.

What’s more? President Joe Biden’s infrastructure proposal includes $50 billion for the American semiconductor industry. The amount will go toward production incentives and research and design, including the creation of a National Semiconductor Technology Center. This will also prop up domestic production and reduce supply-chain crunch that hurts the U.S. auto industry and other sectors.

Our Choices

Given the current boom in the semiconductor space, we have shortlisted four mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) that have significant exposure to semiconductor companies and are poised to grow.Moreover, these funds have encouraging year-to-date (YTD) returns. Additionally, the minimum initial investment is within $5000. We expect these funds to outperform peers in the future.

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 Select Semiconductors Portfolio FSELX fund aims for capital appreciation. The non-diversified fund invests majority of assets in securities of companies, principally engaged in the design, manufacture, or sale of semiconductors and semiconductor equipment.

This Zacks sector – Tech fund has a history of positive total returns for more than 10 years. Specifically, FSELX has three and five-year annualized return of 29.1% and 34.4%, respectively. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSELX has an annual expense ratio of 0.72% versus the category average of 1.24%. Some chipmakers in this fund are NVIDIA, QUALCOMM and Micron Technology.

Putnam Global Technology Fund Class A PGTAX aims for capital appreciation. This non-diversified fund invests primarily in common stocks of large and midsize companies worldwide. It invests majority of its assets in securities of companies in the technology industries. 

This Zacks sector – Tech fund has a history of positive total returns for more than 10 years. Specifically, PGTAX has three and five-year annualized return of 32.5% and 34.6%, respectively. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

PGTAX has an annual expense ratio of 1.10%, which is below the category average of 1.24%. Some chipmakers in this fund are Applied Materials and QUALCOMM.

Franklin DynaTech Fund Class A FKDNX aims for capital appreciation. The fund invests in common stocks of companies that its manager believes are leaders in innovation, have superior management, and benefit from new industry conditions in a dynamically changing global economy.

This Zacks sector – Tech fund has a history of positive total returns for more than 10 years. Specifically, the fund has three and five-year annualized return of nearly 28% and 29.4%, respectively. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FKDNX has an annual expense ratio of 0.85%, which is below the category average of 1.04%. Some chipmakers in this fund are NVIDIA and Lam Research Corp.

Fidelity Select Technology Portfolio FSPTX fund aims for capital appreciation. It invests primarily in equity securities, especially common stocks of companies that are engaged in offering, using, or developing products, processes, or services that will provide or will benefit significantly from technological advances and improvements.

This Zacks Sector – Tech product has a history of positive total returns for more than 10 years. Specifically, this non-diversified has returned 31.1% and 30.5% in the past three and five years, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSPTX has an annual expense ratio of 0.71% versus the category average of 1.24%. Some chipmakers in this fund are Lam Research Corp, ON Semiconductor Corp, Advanced Micro Devices and Xilinx.

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