The semiconductor industry has been doing quite well over the past couple of years. Sales have been soaring on higher demand, helping manufacturers earn higher revenues. However, a supply-chain crisis has also left many industries crippled as the world continues to face acute semiconductor supply shortages.

The crisis has continued for months now but the picture is likely to improve in the near term as the United States gears up to be more self-reliant in semiconductors after a new bill was recently signed into law with the aim of boosting production. Earlier this month, President Joe Biden signed a bipartisan bill to boost domestic semiconductor manufacturing and help the United States compete with China. Thus, funds like Fidelity Select Semiconductors Portfolio (FSELX Quick QuoteFSELX - Free Report) , Fidelity Advisor Semiconductors Fund Class I (FELIX Quick QuoteFELIX - Free Report) and Putnam Global Technology Fund Class A (PGTAX Quick QuotePGTAX - Free Report) are likely to benefit in the near term.

Semiconductor Industry Thriving

Bien recently signed a bipartisan bill into law aimed at enhancing semiconductor production in the United States so that it can compete with China. The $280 billion package called the Chips and Science Act will include funds for research and subsidies. The measure will give the American semiconductor industry $52 billion in subsidies, which will significantly increase production.

Additionally, the Chips and Science Act will provide semiconductor factories with an investment tax credit of $24 billion. Biden and other experts have long been saying that the legislation is essential for economic security and national security as the world becomes more dependent on technology. In this way, the act will help the United States become more self-reliant.

The new act is also expected to ease the ongoing global shortage of semiconductors, which began at the height of the pandemic.

Although the United States was already performing well, it is still producing fewer semiconductors than China. It is currently being anticipated that the new act will help the United States compete with China in terms of production and manufacturing.

Production in sectors like vehicles, consumer electronics, high-tech weapons, and medical equipment has already been hindered by a scarcity of semiconductors, forcing some businesses to reduce output. The new bill is likely to solve this problem to a great extent.

While global semiconductor shortage has been a major concern, sales have been skyrocketing on higher demand. The Semiconductor Industry Association (SIA) reported earlier this month that semiconductor sales increased 13.3% year over year to $152.5 billion in the second quarter 2022.

Additionally, revenues increased 0.5% from the prior quarter. Global semiconductor sales in June totaled $50.8 billion.

As the Internet of Things, artificial intelligence, and virtual reality continue to gain popularity, demand for semiconductors is soaring. Eventually, this will result in higher sales for semiconductor manufacturers. Without semiconductor technology, these cutting-edge technologies cannot be created. Due to the growing need for these services, it is projected that semiconductor demand would rise in the near future.

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 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 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.

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.

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