The technology sector has been the forerunner in the 2023 stock market rally so far this year. The tech-heavy NASDAQ composite has gained 33.5% as compared to the S&P 500 and the Dow’s gain of 17.6% and 6.4%, respectively.

The NASDAQ 100 Technology Sector Index is up 43.6% year to date. Investors who had parked their money in tech stocks during post-pandemic and high-inflation periods have earned handsome returns.

Technology companies are generally interest rate sensitive due to the constant need for development. Expenditures are high because of research and development, and other related costs. The Federal Reserve’s aggressive monetary policy tightening so far to counter inflation has led to a high borrowing cost. This has, in turn, impacted the profitability of tech companies.

However, with inflation inching toward a favorable zone, investors are expecting the Fed to end the rate hike cycle shortly, which bodes well for tech companies. Annualized GDP growth for Q2 increased 2.4%, suggesting that the U.S. economy is still strong. Economists from Bank of America and the Fed are predicting that the possibility of recession has been averted and the Fed has managed to make a soft landing for the economy.

Thus, 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 three mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive three-year and five-year annualized returns, and minimum initial investments within $5000, and carry a low expense ratio. Notably, mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges mostly associated with stock purchases.

Fidelity Select Semiconductors Portfolio FSELX 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. Of its net assets, the fund has invested 24.6% in NVIDIA, 9.2% in NXP Semiconductors and 8.2% in ON Semiconductor, along with various other tech companies as of 2/28/2023.

FSELX’s year-to-date, three-year and five-year annualized returns are nearly 69.5%, 34.1% and 28.0%, respectively. FSELX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.69%, which is less than 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.

Columbia Global Technology Growth Fund CTYRX invests most of its assets along with borrowings, if any, in equity securities, common stocks, preferred stocks and convertible securities of technology companies. CTYRX advisors invest in companies that stand to gain from technological innovation and developments.

Rahul Narang has been the lead manager of CTYRX since Jul 16, 2012. The fund has invested 10.5% in Apple, 9.6%inMicrosoft and 4.5% in NVIDIA,along with various other tech companies as of 2/28/2023.

CTYRX’s year-to-date, three-year, and five-year annualized returns are 40.0%, 13.6% and 16.3%, respectively. CTYRX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.95%, which is less than the category average of 1.05%.

Putnam Global Technology Fund PGTYX invests most of its net assets in common stocks of large and mid-capitalization companies worldwide, which its advisors believe have favorable investment potential in the technology sector. PGTYX advisors choose to invest in companies that have growth or value or sometimes both characteristics.

Di Yao has been the lead manager of PGTYX since Dec 29, 2012. The fund has invested 12.9% in Microsoft, 12.7%inAppleand 6.0% in Taiwan Semiconductor, along with various other tech companies as of 2/28/2023.

PGTYX’s year-to-date, three-year and five-year annualized returns are 39.7%, 12.6% and 16.5%, respectively. PGTYX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.44%, which is less than the category average of 1.05%.

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