Semiconductor sales rebounded strongly in the second quarter after a disappointing second half of 2022 and a slow recovery in the first quarter of this year. The steady rise in sales implies that the worst may be over for the industry.

Given this situation, funds like ProFunds Semiconductor UltraSector Fund SMPSX, Putnam Global Technology Fund A Shs PGTAX and Fidelity Select Semiconductors Portfolio FSELX are likely to benefit in the near term.

Semiconductor Sales Surge

The Semiconductor Industry Association (SIA) said on Aug 4 that global microchips sales rose 4.7% in the second quarter from the previous quarter, totaling $124.5 billion. On a month-over-month basis, semiconductor sales totaled $41.5 billion in June, increasing 1.7%.

Semiconductor sales have now grown for the fourth straight month as the rebound continues. Industry experts had predicted that global semiconductor sales would bottom by the end of the first quarter before making a solid rebound that would continue through 2023.

The report also said that sales would further increase in the second half on renewed optimism and higher demand for chip sales.

Semiconductor sales slowed in the second half of last year after a solid 2020 and 2021 triggered by the remote working culture and higher demand for electronic goods following the COVID-19 outbreak.

Higher demand for semiconductors soon resulted in a supply crunch owing to lockdowns by multiple governments that saw end-user industries like automobiles, power, lighting and electronics facing production disruption.

The supply crisis eased in 2022 but higher prices posed a new threat. The Fed’s aggressive interest rate hike stance to combat soaring inflation slowed demand. Even then, 2022 emerged as a standout year for the semiconductor industry, with sales hitting $573.5 billion, jumping 3.2% from 2021’s total of $555.9 billion.

The recent short-term decline in the semiconductor sector can be linked to a complex interplay of factors, such as rising costs, geopolitical strains, and the lingering impacts of the pandemic. Nevertheless, despite these obstacles, there is still a strong demand for semiconductors.

The worldwide acceptance and escalating use of consumer electronics, coupled with the expanding influence of technologies like artificial intelligence, the Internet of Things, and machine learning, are the primary catalysts behind the growing demand for semiconductors. This trajectory is expected to continue driving the demand for semiconductors for the near term.

3 Best Choices

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.

ProFunds Semiconductor UltraSector Fund seeks daily investment results that correspond to 150%, before fees and expenses, of the performance of the Dow Jones U.S. Semiconductor Index. SMPSX invests in companies that are engaged in the production of semiconductors and other integrated chips.

Specifically, ProFunds Semiconductor UltraSector Fund’s returns over the three and five-year benchmarks are 34.5% and 28.4%, respectively. SMPSX carries a Zacks Mutual Fund Rank #1. (Strong Buy).

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

Putnam Global Technology Fund A Shs aims for capital appreciation. PGTAX invests primarily in common stocks of large and mid-size companies worldwide. Putnam Global Technology Fund Class A invests the majority of its assets in securities of companies in the technology industries.

Specifically, Putnam Global Technology Fund A Shs’returns over the three and five-year benchmarks are 12.4% and 16.2%, respectively. PGTAX carries a Zacks Mutual Fund Rank #2.

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

Fidelity Select Semiconductors Portfolio fund seeks capital appreciation. FSELX normally invests at least 80% of 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 34.1% and 28%, respectively. FSELX 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.
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