The Federal Reserve Chair Jerome Powell in his speech at the Jackson Hole Annual Policy Symposium last month said that more rate hikes are required as inflation remains elevated and a lot higher than the central bank’s target of 2%.

However, a series of negative economic data released over the final week of August has raised fresh hopes that signs of a softening economy may prompt the Fed to keep interest rates unaltered in its upcoming September FOMC meeting.

The Fed remained concerned that despite its aggressive interest rate hikes over the past year, the labor market remained resilient, which has been posing a barrier in its fight to curb multi-year high inflation.

However, recently released data shows that both job additions and job openings in the United States have been narrowing. According to The ADP ADP National Employment Report, private payrolls increased by 177,000 in August, sharply lower than the July figures of 371,000.

This came a day after the JOLTS report showed that job openings fell to 8.8 million in July, lower than the consensus estimate of 9.5 million.

Additionally, the Labor Department said that the unemployment level jumped to 3.8% month over month in July, sharply higher than the rate of 3.5% in June.

Understandably, the labor market is finally cooling. The Fed’s monetary tightening campaign is finally bearing fruit. Inflation has sharply declined from its peak of 9.1% in June 2021. The Fed has increased interest rates by 525 basis points since March 2022 to take its benchmark rate to the range of 5.25%-5.5%.

The signs of a softening economy have once again raised hopes that the Fed might pause its interest rate hikes soon. This bodes well for growth assets like tech companies, which are poised to gain from lower borrowing costs.

This is because higher interest rates can create challenges for tech companies by constraining their future cash flow, which in turn affects their capacity to invest in innovation and limits their potential for growth.

When interest rates increase, it becomes more costly for tech firms to borrow money, resulting in higher cash outflows and increased financial difficulties.

3 Best 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.

Fidelity Select Technology FSPTX fund seeks capital appreciation. Normally, FSPTX invests at least 80% of its assets in common stocks of companies principally engaged in offering, using, or developing products, processes, or services that will provide or will 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 14.3% and 18.9% 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.

Red Oak Technology Select ROGSX fund seeks long-term capital growth by investing primarily in stocks of companies that rely extensively on technology in their product development or operations, or which may be experiencing growth in sales and earnings driven by technology-related products and services. ROGSX primarily invests in technology companies that develop, produce, or distribute products or services related to computers, semiconductors and electronics.

Red Oak Technology Select fund has a history of positive total returns for more than 10 years. Specifically, ROGSX has returned nearly 9.8% and 12.5% over the past three and five-year periods, respectively. Red Oak Technology Select fund has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.92%, 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 KTCAX 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. For the fund’s 80% investment policy, companies in the technology sector must commit at least half of their assets to the technology sector or derive at least half of their revenues or net income from that sector.

DWS Science and Technology A fund has a history of positive total returns for more than 10 years. Specifically, KTCAX has returned nearly 10% and 15.5% 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 0.69%, 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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