Surging demand for microchips and the ongoing enthusiasm surrounding artificial intelligence (AI), especially generative AI, is helping the semiconductor industry make a solid rebound.  Sales have been growing over the past few months, and are projected to improve further as price pressures ease and the Federal Reserve initiates more rate cuts.

Investing in semiconductor funds like Fidelity Select Semiconductors Portfolio (FSELX Quick QuoteFSELX - Free Report) , Fidelity Advisor Semiconductors Fund Class I (FELIX Quick QuoteFELIX - Free Report) and DWS Science and Technology A (KTCAX Quick QuoteKTCAX - Free Report) thus appears to be a prudent choice.

Semiconductor Sales Soar

The Semiconductor Industry Association (SIA) said earlier this month that global semiconductor sales hit $53.1 billion in August, increasing 20.6% from the year-ago levels of $44 billion.

Sequentially, semiconductor sales jumped 3.5% from July's total of $51.3 billion. The year-over-year growth is the biggest percentage jump since April 2022, largely fueled by a 43.9% increase in sales in the Americas.

AI, Future Rate Cuts to Boost Sales

This year's tech rally has been largely driven by NVIDIA Corporation (NVDA), which has emerged as a leader in the generative AI sector, sparking increased interest and development in this field.

Experts believe that AI holds a lot of potential that is yet to be explored. The ongoing enthusiasm is likely to further drive demand as more semiconductor manufacturers explore AI opportunities.

Also, the Federal Reserve began its easing cycle last month with a whopping 50-basis-point rate cut, the first since March 2020. The current benchmark policy rate ranges between 4.75% and 5%, the lowest since April 2023.

The Fed's latest projections show that the federal funds rate could drop to a range of 4.25% to 4.5% by the end of the year, with further cuts of one percentage point in 2025 and another half-point in 2026, potentially bringing rates down to 2.75% to 3%.

Lower interest rates tend to benefit growth assets by reducing the opportunity cost of holding non-yielding investments, such as technology and semiconductor stocks.

3 Semiconductor Funds With Upside

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 its 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 28.2% and 35.2%, respectively. FSELX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.67, which is lower than its category average.

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

Fidelity Advisor Semiconductors Fund Class I fund 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 fund has a track of positive total returns for over 10 years. Specifically, FELIX’s returns over the three and five-year benchmarks are 26.5% and 34%, respectively. FELIX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.73%, which is lower than its category average.

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

DWS Science and Technology A 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 11.9% and 21.4%, respectively. KTCAX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.87%, which is lower than its category average of 1.02%

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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