Manufacturing Activity at Highest Mark in 2 Years: 3 Fund Picks
Despite the coronavirus pandemic, the manufacturing sector has made a comeback in the past months. On Nov 2, the Institute for Supply Management (ISM) reported that its Purchasing Managers' Index (PMI) for manufacturing rose to 59.3% in October, up 3.4 points from the previous month and beating the consensus estimate of 55.9%. The October figure also marked the highest PMI reading since September 2018.
The report states that PMI, new orders and production indexes increased at a faster pace in the reported month and maintained growth for the fifth straight month. Individually, new orders index rose to 67.9%, up 7.7 points from September, the highest since January 2004. While the production index grew 2 points to 63%, inventories and prices grew 4.8 points and 2.7 points to 51.9% and 65.5%, respectively.
Of the 18 manufacturing industries that are surveyed by ISM, the only two that reported contraction are textile mills and companies engaged in printing and related support activities. Apparel and leather, fabricated metal products, non-metallic mineral products, food and related products, plastics and rubber, machinery, furniture, paper, wood, chemical products, primary metals, computers and electronics, transportation equipment, electrical equipment, and miscellaneous manufacturers, all reported growth in October and expressed optimism in sustained growth.
Another improvement witnessed in the manufacturing sector was a 3.6-point growth in employment to 53.2%. October’s job addition breaks the 14-month streak of contraction in manufacturing employment. Given the circumstances, investing in mutual funds that have significant exposure to the manufacturing and industrial companies seems prudent.
Our Top 3 Fund Picks
Given the persistent growth in manufacturing activities, we have highlighted three mutual funds 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 annual returns. Additionally, the minimum initial investment is within $5000.
We expect these funds to outperform 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.
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 Chemicals Portfolio FSCHX fund aims for capital appreciation. The non-diversified fund normally invests at least 80% of its assets in common stocks of companies principally engaged in the research, development, manufacture, or marketing of products or services related to the chemical process industries.
This Sector - Other product has a history of positive total returns for over 10 years. Specifically, the fund has returned 7.9% over the five-year benchmark. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
FSCHX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.78%, which is below the category average of 1.34%.
Fidelity Select Automotive Portfolio FSAVX fund aims for capital appreciation. This non-diversified fund invests majority of its assets in common stocks of companies involved in the manufacture, marketing or sale of automobiles, trucks, specialty vehicles, parts, tires and related services.
This Sector - Other product has a history of positive total returns for over 10 years. Specifically, the fund has returned 12.9% and 11.6% over the past three and five years, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
FSAVX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.00%, which is below the category average of 1.22%.
Fidelity Select Industrials Portfolio FCYIX fund aims for capital appreciation. This non-diversified fund normally invests a large portion of its assets in the common stock of companies principally engaged in the research, development, manufacture, distribution, supply, or sale of industrial materials, equipment, products, or services.
This Sector - Other product has a history of positive total returns for over 10 years. Specifically, the fund has returned 3.7% and 9.2% over the past three and five years, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
FCYIX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.76%, which is below the category average of 1.04%.
Want key mutual fund info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Get Your Free (FCYIX): Fund Analysis Report
Get Your Free (FSAVX): Fund Analysis Report
To read this article on Zacks.com click here.
