The semiconductor sector has been on a tear over the past couple of years. Microchip demand has been on the rise thanks to its increased adoption in consumer electronics, automotive, industrial tools & equipment, and networking & communication goods.

The demand got a further push during the pandemic, as people worked and learned from home, resulting in increased purchases of consumer electronics, and networking and communication gear. However, rising demand has led to a supply crunch for months.

Microchip manufacturers, on the other hand, have benefited from the demand situation. Thus, funds like Fidelity Advisor Semiconductors Fund Class I (FELIX Quick QuoteFELIX - Free Report) , Franklin DynaTech Fund Class A (FKDNX Quick QuoteFKDNX - Free Report) andFidelity Select Semiconductors Portfolio (FSELX Quick QuoteFSELX - Free Report) are likely to benefit in the near term.

Semiconductor Industry Continues to Thrive

According to a recent report from Gartner, global semiconductor sales jumped 25.1% in 2021 to $583.5 billion, crossing the $500 billion mark for the first time. Total revenues climbed $42.1 billion in 2021, accounting for 33.8% of overall semiconductor revenue growth.

DRAM had the strongest success within memory, with a revenue increase of 40.4% in 2021 to $92.5 billion. Strong demand from servers and PCs resulted in a DRAM shortage, resulting in double-digit ASPs for most of the year.

Microchip sales are also getting a push from soaring demand from the 5G smartphone market, with unit manufacturing more than doubling to 555 million in 2021, up from 250 million in 2020.

Moreover, the growing demand for the Internet of Things (IoT), artificial intelligence and virtual reality has seen demand for microchips soar.

That said, the semiconductor shortage is far from over and is likely to continue almost throughout this year. This is only going to help the industry, given that the demand will continue.

According to a recent study by Deloitte, the global semiconductor industry is projected to grow 10% in 2022 to reach $600 billion for the first time.

Given the rising demand for semiconductors and continuing supply crunch, the semiconductor industry is only likely to benefit in 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 (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

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. 

This Sector – Tech product has a track of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 41.8% and 29.9%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

FELIX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.77%, which is below the category average of 1.05%.

Franklin DynaTech Fund Class A seeks capital appreciation. FKDNX’s managers invest primarily in companies that emphasize scientific or technological development or that are fast-growing industries, targeting growth opportunities they believe are available at reasonable valuations. Franklin DynaTech Fund Class A’s manager searches for industry leaders and companies that it believes have a competitive advantage due, for example, to their state-of-the-art products or technologies.

This Sector – Tech product has a track of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 22.5% and 22.4%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

FKDNX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.85%, which is below the category average of 0.99%.

Fidelity Select Semiconductors Portfolio 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.

This Sector – Tech product has a track of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 42.4% and 30.4%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

FSELX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.70%, which is below the category average of 1.05%.

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