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3 Funds to Buy in a Challenging Market for Semiconductors

Semiconductors sales have been slowing over the past few months but 2022 still emerged as one of the best years for the sector. In fact, semiconductor sales witnessed one of the best years region-wise, as demand remained high.

Although there have been concerns that the semiconductor market might decline now as the supply-chain crisis has eased to a great extent, demand is still high, which has been helping boost sales. Also, the United States is making efforts to become more self-sufficient in semiconductors as a new law with formulated last year that aims at boosting production. Thus, funds like Fidelity Select Semiconductors Portfolio FSELX, Fidelity Advisor Semiconductors Fund Class I FELIX and ProFunds Semiconductor UltraSector Fund SMPSX are likely to benefit in the near term.

Semiconductor Sales Rise

The Semiconductor Industry Association ("SIA") said on Feb 3 that global semiconductor sales rose 3.2% to $573.5 billion in 2022 from $555.9 billion in 2021. Although global sales decreased both in the fourth quarter and December, overall demand for semiconductors has been strong.

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Sales declined $130.2 billion or 14.7% in the fourth quarter on a year-over-year basis. SIA said that the semiconductor market witnessed significant ups and downs in 2022, which saw sales decline in the second half of the year.

“Despite short-term fluctuations in sales due to market cyclicality and macroeconomic conditions, the long-term outlook for the semiconductor market remains incredibly strong, due to the ever-increasing role of chips in making the world smarter, more efficient, and better connected,” said John Neuffer, SIA president and CEO.

The semiconductor market got a boost soon after the pandemic struck. As more people worked and learned from home, demand for communication devices and accessories increased. Also, automobile companies drive demand significantly. Higher demand coupled with a supply-chain crisis resulting from the lockdowns during the peak of the pandemic resulted in a supply crunch for semiconductors.

The problem has to a great extent, been solved, which has somewhat slowed demand. Even then, semiconductor demand remains high.

Moreover, the advancement of technologies like artificial intelligence, machine learning, and the Internet of Things is also driving demand for semiconductors.

Also, the CHIPS and Science Act that was passed in 2022 will give the semiconductor industry a big boost. The measure intends to increase semiconductor production and increase American independence. The $280 billion proposal also includes financing for research and subsidies.

Our 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 in identifying 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 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 14.1% and 16.6%, respectively. Fidelity Select Semiconductors Portfolio fund has a Zacks Mutual Fund Rank #1. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

Fidelity Advisor Semiconductors Fund Class I 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 has a track of positive total returns for over 10 years. Specifically, FELIX’s returns over the three and five-year benchmarks are 14.1% and 16.4%, respectively. Fidelity Advisor Semiconductors Fund Class I has a Zacks Mutual Fund Rank #1. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

ProFunds Semiconductor UltraSector Fund invests in a combination of financial instruments that its fund manager believes will produce daily returns consistent with the fund's investment objective. SMPSX is a non-diversified fund.

ProFunds Semiconductor UltraSector Fund has a track of positive total returns for over 10 years. Specifically, SMPSX’s returns over the three and five-year benchmarks are 7.7% and 12.4%, respectively. ProFunds Semiconductor UltraSector Fund has 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.

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