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4 Technology Mutual Funds to Buy for Long-Term Gains

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The technology sector in the United States has given investors handsome returns since 2023 courtesy of a boom in artificial intelligence, machine learning and related sectors. The tech-heavy NASDAQ composite has rewarded investors with a 31.9% gain as compared to the 26.4% and 19.3% return of the S&P 500 and the Dow, respectively, over the past year.

The NASDAQ 100 Technology Sector Index has added 44.8% in the same period. Investors who had parked their money in tech stocks have earned attractive returns owing to the recent advancement in the industry.

Due to the constant need for development, technology companies are generally interest rate sensitive. Costs incurred in research and development, and other related expenditures are generally high. The Federal Reserve’s stance to counter inflation by keeping interest rates high for longer has led to a high borrowing cost. This has caused major challenges to the profitability of tech companies.

According to the Labor Department’s Bureau of Labor Statistics, the Consumer Price Index (CPI) increased 0.3% in April, slightly below the consensus estimate of 0.4%. The Federal Reserve, in its last policy meeting, kept the interest rate unchanged, undermining the possibility of policy changes till inflation inches toward a favorable zone.

According to the advance estimate, U.S. gross domestic product increased at an annual rate of 1.6% in the first quarter of 2024 compared with a 3.4% rise in fourth-quarter 2023. The challenge remains for the Fed to create a soft landing for the economy by striking the right balance between inflation and growth. Though the Fed’s 2% inflation target is still far from reach, responding to the current developments, the central bank will most likely ease its monetary policy in the near future. The projections for the Fed’s interest rate cuts are adjusted to a lower range of 4.75-5% by the end of the year compared to the current range of 5.25-5.5%.

The future of the tech industry remains optimistic. The new wave of regenerative artificial intelligence, machine learning, cloud computing, the Internet of Things and robotics are also expected to drive growth among tech stocks. It will be prudent to invest in mutual funds, having tech companies as their holdings for better returns in the long run.

We have thus selected four mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy), have positive three-year and five-year annualized returns and minimum initial investments within $5000, and carry a lower expense ratio of less than 1%. Notably, mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Fidelity Select Semiconductors Portfolio (FSELX - Free Report) invests most of its assets in common stocks of both foreign and domestic companies that are primarily engaged in the design, manufacture, or sale of semiconductors and semiconductor equipment. FSELX advisors make investment decisions based on fundamental analysis factors like financial condition and industry position, as well as market and economic conditions.

Adam Benjamin has been the lead manager of FSELX since Mar 15, 2020. Most of the fund’s exposure was in companies like NVIDIA (24.1%), NXP Semiconductors (7.7%) and ON Semiconductor (7%) as of Feb 29, 2024.

FSELX’s three-year and five-year annualized returns of nearly 28% and 32.1%, respectively. FSELX has an annual expense ratio of 0.68%.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Fidelity Advisor Technology Fund (FATIX - Free Report) invests most of its net assets in common stocks of domestic and foreign companies that are principally engaged in offering, using, or developing products, processes, or services that will provide or benefit significantly from technological advances and improvements. FATIX advisors choose to invest in stocks based on fundamental analysis factors like financial condition and industry position, along with market and economic conditions.

Adam Benjamin has been the lead manager of FATIX since Jul 19, 2020. Most of the fund’s exposure was in companies like Microsoft (19.5%), NVIDIA (14.4%) and Apple (14.3%) as of Jan 31, 2024.

FATIX’s three-year and five-year annualized returns are 10.6% and 22.2%, respectively. FATIX has an annual expense ratio of 0.70%.

DWS Science and Technology (KTCSX - Free Report) fund invests most of its assets along with borrowings, if any, incommon stocks and initial public offerings of domestic science and technology companies, irrespective of their market capitalization. KTCSX advisors may also invest in foreign companies from the technology sector or other industries within the technology sector from developed and emerging market economies.

Sebastian P. Werner has been the lead manager of KTCSX since Nov 30, 2017. Most of the fund’s exposure was in companies like NVIDIA (11%), Microsoft (10.3%) and Meta Platforms (8.7%) as of Jan 31, 2024.

KTCSX’s three-year, and five-year annualized returns of 8.3% and 18%, respectively. KTCSX has an annual expense ratio of 0.72%.

Fidelity Select Technology Portfolio (FSPTX - Free Report) fund invests primarily in common stocks of domestic and foreign companiesthat offer, use, or develop products, processes, or services that will benefit significantly from technology advancements. FSPTX uses fundamental analysis techniques like financial condition, industry position, as well as, market and economic conditions to select investments.

Adam Benjamin has been the lead manager of FSPTX since Jan 17, 2022. Most of the fund’s exposure was in companies like Microsoft (18.2%), NVIDIA (15.7%) and Apple (12.4%) as of Feb 29, 2024.

FSPTX’s three-year and five-year annualized returns of almost 7.9%, and 20.6%, respectively. FSPTX has an annual expense ratio of 0.68%.

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