Markets are heading toward closing on a high note in 2023, as investors now believe that the economy will have a softer landing after the Federal Reserve indicated that its benchmark policy rate has reached its high or near it. The Dow, the S&P 500 and the Nasdaq are up 12.5%, 23.5% and 42.4%, respectively, year to date.

Nasdaq has particularly been on a dream run. The rally was primarily fueled by the enthusiasm surrounding artificial intelligence (AI), which attracted investors to this sector. This has seen the S&P 500’s Technology Select Sector SPDR (XLK) rally 54.2% this year as of Dec 18.

Tech Rally to Continue

The tech rally stalled after the first seven months of the year as investors struggled to gauge the Fed’s next course of action with its interest rates. The Federal Reserve hiked interest rates by 525 basis points to take the benchmark policy rate in the range of 5.25-5.50% in its bid to curb multi-decade high inflation.

Aggressive interest rate hikes raised fears among investors that the economy could slip into a recession. However, a steady decline in inflation over the past 18 months saw the central bank leaving interest rates unchanged in its last three policy meetings.

Signs of slowing inflation once again gave investors’ confidence a boost, with the tech rally resuming in October. This saw November turning out to be the best month for the Nasdaq since January 2021.

Investor sentiment is high once again as the Fed, in its December FOMC meeting, hinted at ending its monetary tightening campaign soon. Also, the Federal Reserve said that it would closely watch inflation data and would try not to keep interest rates high for a longer period.

A majority of Federal Reserve officials now intend to go for at least three 25-basis point rate cuts in 2024. Tech stocks are particularly at risk because higher interest rates typically impact growth sectors such as technology. Hence, lower borrowing rates in the near bode well for the tech sector.

Our Choices

As a result, we've chosen three funds from the tech sector that are worth buying. These funds have given impressive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

DWS Science and Technology A (KTCAX Quick QuoteKTCAX - Free Report) fund seeks growth of capital. Under normal circumstances, KTCAX invests at least 80% of net assets in common stocks of U.S. companies in the technology sector.

DWS Science and Technology A fund has a track of positive total returns for over 10 years. Specifically, KTCAX’s returns over the three and five-year benchmarks are 6.9% and 17.3%, respectively. The annual expense ratio of 0.69% is lower than the category average of 1.05%. DWS Science and Technology A fund has a Zacks Mutual Fund Rank #1.

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

Select Software & IT Svcs Port (FSCSX Quick QuoteFSCSX - Free Report) fund seeks capital appreciation. FSCSX normally invests at least 80% of assets in common stocks of companies principally engaged in research, design, production, or distribution of products or processes that relate to software or information-based services.

Select Software & IT Svcs Port fund has a track of positive total returns for over 10 years. Specifically, FSCSX’s returns over the three and five-year benchmarks are 8.5% and 17.6%, respectively. The annual expense ratio of 0.69% is lower than the category average of 1.05%. Select Software & IT Svcs Port fund has a Zacks Mutual Fund Rank #1.

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

Columbia Seligman Technology and Information Fund (SLMCX Quick QuoteSLMCX - Free Report) seeks to achieve capital gain. SLMCX invests at least 80% of its net assets in the securities of companies operating in the communications, information and related industries.

Columbia Seligman Technology and Information Fund has a track of positive total returns for over 10 years. Specifically, SLMCX’s returns over the three and five-year benchmarks are 12% and 21.4%, respectively. The annual expense ratio of 0.95% is lower than the category average of 1.05%. SLMCX has a Zacks Mutual Fund Rank #2.

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

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