The Federal Reserve recently announced a pause in its rate hike trajectory. This decision has sent positive ripples through the stock market, particularly benefiting the technology sector. As a driver of innovation, disruption and growth, the technology industry often relies heavily on capital investment and access to financing. Consequently, fluctuations in interest rates can significantly impact the sector's performance.

 

One of the immediate benefits of the rate hike pause is the reduction in borrowing costs for technology companies. With interest rates remaining stable, businesses within the technology sector can access funding at more favorable terms. The rate hike pause can fuel M&A activity within the technology sector by lowering borrowing costs and making deals more financially feasible.

 

Interest rates have a significant impact on technology firms because it is one of the key factors affecting future cash inflows. As interest rates increase, it becomes more challenging for technology firms to access funding due to an upsurge in borrowing costs. This leads to reduced reinvestment in innovation and feeble growth prospects for the technology sector.

 

In addition to impacting future cash inflows, interest rate hikes can also increase technology companies’ costs of borrowing. Higher borrowing costs burn cash and increase losses, making it difficult for companies to pursue expansion plans or invest in research and development.

 

The recent turmoil in the U.S. banking sector has surprisingly benefited technology players, leading to a significant increase in their market value. Technology companies have demonstrated their adaptability and resilience in volatile times, making them attractive.

 

Concerns over the credit crunch and deposit withdrawals have prompted safer options, with technology companies being perceived as reliable and stable investments. Their robust business models, online presence, and potential for growth have

 

positioned them as secure bets. Additionally, their strong financial position, including substantial cash reserves, enhances their appeal. The positive impact on technology companies showcases their ability to thrive amid uncertainty.

 

Hence, astute investors may look to invest in technology mutual funds at present. Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

 

We have thus selected four such technology mutual funds that 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 Advisor Semiconductors Fund (FELIX Quick QuoteFELIX - Free Report) seeks to achieve capital appreciation by investing in common stocks and securities of companies that are primarily involved in the design, manufacturing, or sale of electronic components. It pays out dividends and capital gains in September and December.

 

Adam Benjamin has been the lead manager of FELIX since Mar 15, 2020. Most of the fund’s holdings were in companies like NVIDIA CORP (24.7%), NXP SEMICONDUCTORS NV (9.3%) and ON SEMICONDUCTOR CORP (8.6%) as of Jan 31, 2023.

 

FELIX’s 3-year and 5-year returns are 27.1% and 22.2%, respectively. The annual expense ratio is 0.75% compared to the category average of 1.05%. FELIX 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.

 

DWS Science and Technology Fund (KTCSX Quick QuoteKTCSX - Free Report) invests in common stocks of science and technology companies. It has the flexibility to invest in companies of various sizes and may also participate in initial public offerings, U.S. stocks, and foreign securities.

 

Sebastian P. Werner has been the lead manager of KTCSX since Nov 30, 2017. Most of the fund’s holdings were in companies like MICROSOFT (7.4%), APPLE (7.1%), and ALPHABET (6.9%) as of Jan 31, 2023.

 

KTCSX’s 3-year and 5-year returns are 10.3% and 12.8%, respectively. The annual expense ratio is 0.71% compared to the category average of 1.05%. KTCSX has a Zacks Mutual Fund Rank #1.

 

T. Rowe Price Science and Technology Fund (PRSCX Quick QuotePRSCX - Free Report) seeks to achieve long-term capital growth by investing in common stocks of companies that its advisors believe will gain from the advancement, usage and development of science and technology. It declares dividends very December.

 

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 (9.4%), SALESFORCE (8.7%) and ALPHABET (9%) as of Dec 31, 2022.

 

PRSCX’s 3-year and 5-year returns are 9.4% and 10.3%, respectively. The annual expense ratio is 0.84% compared to the category average of 1.05%. PRSCX has a Zacks Mutual Fund Rank #1.

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