U.S. Industrial Production Remains Upbeat: 3 Fund Picks – August 17, 2018

The Federal Reserve reported on Aug 15, that U.S. industrial production for the month of July increased 0.1%. This rise was supported by steady growth in manufacturing output. An increase in manufacturing activity points at steady economic growth as manufacturing constitutes a bulk of the GDP.

Under circumstances where manufacturing and factory output remains robust, betting on mutual funds investing heavily in industrial and manufacturing companies seems prudent.

Industrial Production Edges Up in July

Experts had largely expected that U.S. factories would suffer due to an increase in tariffs on China by the Trump administration. Such anticipations stemmed from the fact that China too had imposed increased retaliatory tariffs on the United States. However, manufacturing output, which constitutes about 12% of the economy, increased steadily on the back of strong domestic and global demand. The metric gained 0.3% last month, in line with the consensus estimate.

Such growth was pivotal in boosting overall industrial production last month. On the other hand, capacity utilization, which measures the overall production efficiency of firms within the country, remained unchanged from June at 78.1% in July.

Factors Supporting Such a Growth

Apart from improving manufacturing activity, a steady increase in motor vehicle production, machinery output, and production of computers and electronics in the country also contributed significantly to July’s rise in industrial production. While motor vehicle production rose 0.9% last month, machinery output and production of computers and electronics witnessed 0.6% and 1.9% growth, respectively, in the same period.

Notably, manufacturing output increased 2.8% from the same period in 2017. Meanwhile, mining production declined 0.3% in July, and oil and gas well drilling declined 4.3%. Despite falling, mining output remained well above the 2017 level, increasing 13% from last year. Also, utilities have increased 2.3% from 2017.

3 Best Funds to Buy Now

Given such positives, 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 three and one-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 Select Industrials Fund (FCYIX Free Report) seeks capital appreciation. FCYIX 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 materials, equipment, products, or services related to cyclical industries.

This Sector – Other product has a history of positive total returns for over 10 years. Specifically, the fund has returned 11.4% over the three-year and 11% over the five-year benchmarks. 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 #1 and an annual expense ratio of 0.77%, which is below the category average of 1.04%.

Fidelity Select Defense & Aerospace Portfolio (FSDAX Free Report) invests a huge portion of its assets in securities of companies involved primarily in the research, manufacture and sale of products and services as per the defense or aerospace industries. The fund seeks capital growth by investing in both U.S. and non-U.S. companies.

This Sector – Other product has a history of positive total returns for over 10 years. Specifically, the fund has returned 20.8% over the three-year and 17.2% over the five-year benchmarks. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

FSDAX sports a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 0.76%, which is below the category average of 1.04%.

Fidelity Select Automotive Port (FSAVX Free Report) seeks capital appreciation. This fund invests the 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 4.5% over the three-year and 6.1% over the five-year benchmarks. 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 #2 and an annual expense ratio of 0.96%, which is below the category average of 1.17%.

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