Expectations of more rate cuts this year have been adding fuel to the ongoing Wall Street rally.  The Federal Reserve went for a jumbo 50 basis point rate cut in its September FOMC meeting. It was the first interest rate cut since March 2020 and the biggest since 2008.

This brings the Federal Reserve benchmark policy rate down from the range of 5.25-5.5%, a 23-year high, to 4.74-5%. Growth assets, particularly tech stocks, have been reaping the benefits of the recently announced rate cuts. The tech sector, which has been driving the broader market rally since last year, is likely to benefit more from further rate cuts.

Given this positive sentiment, investing in large-cap growth funds would be an ideal choice. Three such funds are Fidelity Select Semiconductors Portfolio FSELX, Fidelity Select Technology Portfolio FSPTX and DWS Science and Technology A KTCAX.

Tech Stocks to Benefit From Rate Cuts

Hopes of more interest rate cuts soared this week after Federal Reserve Chairman Jerome Powell suggested that more rate cuts could be on the horizon this year as steadily cooling inflation has made the central bank adopt a dovish outlook.

Currently, the CME FedWatch tool indicates a 100% chance of a 25-basis point rate cut in November. For December, there's a 100% probability that the total rate cut for the year will reach 1% and a 64% chance that it could be 1.25%.

Moreover, the Fed's latest dot-plot projects a decrease of one percentage point rate cut in 2025 and another half-point reduction in 2026, which would bring the rate down to a final range of 2.75% to 3%.

Tech stocks, which are considered growth assets tend to benefit from a low interest-rate environment. Tech stocks typically have an inverse relationship with market interest rates. As interest rates fall, the value of these assets tends to increase since the cost of holding non-yielding assets, such as tech stocks, becomes lower.

Tech Funds to Gain From a Low Interest Rate Environment

We have selected three technology mutual funds that are poised to gain from the above factors. Moreover, these funds have encouraging three and five-year returns. 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 its 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 26.1% and 36.3%, respectively. FSELX has a Zacks Mutual Fund Rank #1 and its annual expense ratio is lower than the category average.

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

Fidelity Select Technology Portfolio seeks capital appreciation by investing most of its assets in common stocks of companies principally engaged in offering, using, or developing products, processes, or services that will provide or benefit significantly from technological advances and improvements.

Specifically, Fidelity Select Technology Portfolio’s returns over the three and five-year benchmarks are 11.4% and 24.3%, respectively. FSPTX has a Zacks Mutual Fund Rank #1 and its annual expense ratio is lower than the category average.

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 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.

DWS Science and Technology A fund has a track of positive total returns for over 10 years. Specifically, KTCAX’s returns over the three and five-year benchmarks are 8.8% and 20.7%, respectively. DWS Science and Technology A fund has a Zacks Mutual Fund Rank #1 its annual expense ratio is lower than the category average.

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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