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US Service Activity Hits 17-Year High in July: 4 Fund Picks

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On Aug 5, the Institute for Supply Management’s (ISM) index of non-manufacturing companies rose to 58.1% in July from the previous month’s figure of 57.1%. The index expanded in July for the second month in a row and beat the consensus estimate of 55%. The non-manufacturing sector accounts for nearly 90% of the U.S. economy and any reading above 50% indicates expansion of the broader economy.

The sub-indexes new orders and production rose in July for the second consecutive month post the contraction in April and May. The index for new orders jumped to 67.7% in July from the June’s reading of 61.6%, while the business activity index came in at 67.2%, marking a 1.2 percentage point jump from June’s reading of 66%.

Of the 18 service industries tracked by ISM, 15 expanded in July, indicating that the economy has shown more resilience than expected as a spike in new coronavirus cases had forced many states to reimpose restrictions and hindered the reopening process. However, retailers, health-care providers and most other service-oriented businesses expanded in July.

Anthony Nieves, the Chair of ISM’s Services Business Survey Committee said that given the past relationship between the non-manufacturing index and the overall economy, July’s jump “corresponds to a 3.3-percent increase in real gross domestic product on an annualized basis.”

4 Top Mutual Fund Picks

Given such upbeat economic data which indicates a rebound in the U.S. economy, we have shortlisted four mutual funds from retailers, health-care and business services providers that carry a Zacks Mutual Fund Rank #1 (Strong Buy) and are poised to gain. Moreover, these funds have encouraging year-to-date (YTD) returns. Additionally, the minimum initial investment is within $5000. We expect these funds to outperform their peers in the future.

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 Health Care Portfolio (FSPHX - Free Report) fund aims for capital appreciation. Majority of the fund’s assets are invested in securities of companies engaged in the design, manufacture or sale of products or services used for or in connection with health care or medicine. This non-diversified fund invests in both domestic and foreign issuers.

This Zacks sector – Health product has a history of positive total returns for more than 10 years. Specifically, the fund’s returns are 16.1% over the past 3 years. To see how this fund performed compared with its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSPHXhas an annual expense ratio of 0.70%, which is below the category average of 1.26%.

Fidelity Select Retailing Portfolio (FSRPX - Free Report) fund aims for capital appreciation. This non-diversified fund primarily invests in common stocks. And 80% of its net assets are invested in companies principally engaged in merchandising finished goods and services primarily to individual consumers.

This Zacks sector – Other product has a history of positive total returns for more than 10 years. Specifically, the fund’s returns are 19.3% over the past 3 years. To see how this fund performed compared with its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSRPXhas an annual expense ratio of 0.74%, which is below the category average of 1.27%.

Fidelity Select Leisure Portfolio (FDLSX - Free Report) fund aims for capital appreciation. This non-diversified fund primarily invests in common stocks of companies that are principally engaged in the design, production or distribution of goods or services in the leisure industries.

This Zacks sector – Other product has a history of positive total returns for more than 10 years. Specifically, the fund’s returns are 3.6% over the past 3 years. To see how this fund performed compared with its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FDLSXhas an annual expense ratio of 0.76%, which is below the category average of 1.27%.

Fidelity Select Environment and Alternative Energy Portfolio (FSLEX - Free Report) fund aims for capital appreciation. This non-diversified fund primarily invests 80% of its assets in common stocks. These companies are engaged in business activities related to alternative and renewable energy, energy efficiency, pollution control, water infrastructure, waste and recycling technologies, or other environmental support services.

This Zacks sector – Other product has a history of positive total returns for more than 10 years. Specifically, the fund’s returns are nearly 2% over the past 3 years. To see how this fund performed compared with its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSLEXhas an annual expense ratio of 0.85%, which is below the category average of 1.10%.

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