The Federal Reserve paused interest rate hikes in its September FOMC meeting. This is only the second time that the central bank left interest rates unchanged since the launch of its monetary tightening campaign in March 2022.

Lower borrowing rates always bode well for growth assets, especially tech stocks. Given this situation, investing in tech funds like Fidelity Select Technology (FSPTX Quick QuoteFSPTX - Free Report) , Janus Henderson Global Technology and Innovation Fund (JNGTX Quick QuoteJNGTX - Free Report) and DWS Science and Technology A (KTCAX Quick QuoteKTCAX - Free Report) would be prudent.

Fed Pauses Interest Rate Hike

On Sep 21, the Fed kept its policy interest rates unaltered to the current range of 5.25-5.5%. However, markets didn’t cheer the decision as the Fed also hinted at another rate hike this year.

The next interest rate hike of 25 basis points is expected in the Federal Reserve’s November FOMC meeting. Although another hike in the next two months has left investors worried, the good news is that the monetary tightening campaign is likely to end after that.

Moreover, the Fed also said that it expects to start cutting rates from 2024 and two rate cuts are expected next year. The Fed’s decision comes as inflation has sharply declined over the past year and more than halved from its peak of 9.1% in June 2022.

Also, the U.S. economy has been resilient despite the aggressive interest rate hikes, which saw the Gross Domestic Product (GDP) growing 2.1% in the second quarter. Moreover, the annual GDP is projected to increase 2.1% in 2024. The upward revision indicates the Fed’s confidence that the economy will have a softer landing.

Moreover, consumer spending has been robust despite inflationary pressures, while the labor market, despite slowing, remains resilient.

Given the economic indicators, the technology sector appears to be an appealing investment option. Higher interest rates can pose challenges for tech companies in terms of future cash flows and innovation investments.

Moreover, higher interest rates lead to increased borrowing costs, cash outflows, and potential losses, which can impede growth potential. Despite this, with an overall positive economic outlook, tech mutual funds present a potential opportunity for long-term growth and stability amid uncertainties.

Our Choices

We have selected three mutual funds with significant exposure to the tech sector. The funds carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) and are poised to gain from the above 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 in identifying potential winners and losers. Unlike most fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also 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 Technology seeks capital appreciation. FSPTX invests the majority of its assets in common stocks of companies principally engaged in offering, using, or developing products, processes, or services that will provide or benefit significantly from technological advances and improvements.

Fidelity Select Technology fund has a history of positive total returns for more than 10 years. Specifically, FSPTX has returned nearly 9.1% and 17.3% over the past three and five-year periods, respectively. Fidelity Select Technology fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.70%, which is below the category average of 1.05%.

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

Janus Henderson Global Technology and Innovation Fund aims for long-term growth of capital and specializes in technology. JNGTX invests the majority of its net assets in securities of companies that the portfolio manager believes will benefit significantly from advances or improvements in technology.

Janus Henderson Global Technology and Innovation Fund has a history of positive total returns for more than 10 years. Specifically, JNGTX has returned nearly 4.2% and 13.8% over the past three and five-year periods, respectively. Janus Henderson Global Technology and Innovation Fund has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.91%, which is below the category average of 1.05%.

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 A fund 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.

DWS Science and Technology A fund has a history of positive total returns for more than 10 years. Specifically, KTCAX has returned nearly 6.5% and 13.8% over the past three and five-year periods, respectively. DWS Science and Technology A fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.71%, which is below the category average of 1.05%.

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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