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Buy These 4 Defensive Funds to Beat Market Volatility
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Bloodshed on Wall Street, which began earlier this year, continues and has pushed investors toward a bearish mindset. The S&P 500, the DOW and the Nasdaq have given a negative return of 18.15%, 14.80%, and 23.91%, respectively, so far this year.
All the major indexes are in negative territory mainly due to the Federal Reserve’s aggressive hawkish stances to counter inflation and other rising geopolitical tensions.
The consumer price index (CPI) for the month of August rose 0.1%, with a 6.3% increase year on year after remaining unchanged for the month of July. Rents, food and health care mainly accounted for an increase in the CPI.
With inflation numbers at multi decades high and the Fed’s target of 2% looking a distant reality, more interest rate hikes seem inevitable. Such moves will increase the cost of borrowing, impact consumer spending and slow down economic growth, thereby pushing the economy towards a recession.
The Volatility Index measured by VIX closed in at 26.27 on Sep 15, with a 52.56% increase so far this year, reaffirming the panic situation in the market. On the other side, Russia’s war against Ukraine and rising tension between China and Taiwan have led to a further global supply-chain disruption. This, along with fresh COVID-19 protocol implemented in China, has impacted corporate profits as companies will take time to overcome regulatory, financial and technology hurdles.
Looking at the current situation, investing in mutual funds with significant exposure in defensive sectors like consumer staples, healthcare, telecommunication services and utilities seems prudent for investors who wish to diversify and earn a positive return. These funds invest in recession-proof companies that do not get affected by the economic cycle as they produce goods or offer services catering to the basic needs of consumers regardless of market or economic condition. Such funds provide stable returns at a relatively lower level of risk.
Thus, we have selected four defensive mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive three-year and five-year annualized returns, require minimum initial investments within $5000, and carry a low expense ratio.
Fidelity Select Health Care Services Portfolio (FSHCX - Free Report) invests most of its net assets in common stocks of foreign and domestic issues that are primarily engaged in the ownership or management of hospitals, nursing homes, health maintenance organizations. It also invests in other companies specializing in the delivery of health care services. FSHCX advisors choose to invest in stocks based on fundamental analysis factors like financial condition, industry position, as well as market and economic conditions.
Justin Segalini has been the lead manager of FSHCX since Jan 28, 2016, and most of the fund’s exposure is in companies like Unitedhealth Group (24.11%), Cigna (8.27%) and Humana (8.06%) as of 5/31/2022.
FSHCX’s three-year and five-year annualized returns are 20.2% and 15.1%, respectively. FSHCX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.71% compared with the category average of 1.03%.
To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Fidelity Select Utilities Portfolio (FSUTX - Free Report) invests most of its net assets in common stocks of foreign and domestic issues that are primarily engaged in the utility industry or companies deriving a majority of their revenues from utility operations. FSUTX advisors choose to invest in stocks based on fundamental analysis factors like financial condition, industry position, as well as market and economic conditions.
Douglas Simmons has been the lead manager of FSUTX since Oct 2, 2006, and most of the fund’s exposure is in companies like Nextera Energy (14.61%), Southern Co (7.99%) and Sempra (6.04%) as of 5/31/2022.
FSUTX’s three-year and five-year annualized returns are 10.12% and 10.73%, respectively. FSUTX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.73% compared with the category average of 0.94%.
Fidelity Telecom and Utilities Fund (FIUIX - Free Report) invests most of its net assets in common stocks of foreign and domestic companies that are engaged in telecommunications services companies and utility companies. FIUIX advisors use fundamental analysis techniques like financial condition, industry position, as well as market and economic conditions to select investment.
Douglas Simmons has been the lead manager of FIUIX since Sept 30, 2005, and most of the fund’s exposure is in companies like Nextera Energy (9.29%), AT&T (9.15%) and T-Mobile US (8.57%) as of 4/30/2022.
FIUIX’s three-year and five-year annualized returns are 6.9% and 8.0%, respectively. FIUIX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.60% compared with the category average of 0.94%.
Fidelity Select Consumer Staples Portfolio (FDIGX - Free Report) invests most of its net assets in common stocks of foreign and domestic companies that are principally engaged in the business of manufacture, sale, or distribution of consumer staples. FDIGX advisors select investments based on fundamental analysis techniques like financial condition, industry position as well as market and economic conditions.
Ben Shuleva has been the lead manager of FDIGX since Jan 1, 2020, and most of the fund’s exposure is in companies like Coca-cola (15.29%), Procter & Gamble (13.41%) and Walmart (7.10%) as of 5/31/2022.
FDIGX’s three-year and five-year annualized returns are 9.3% and 6.7%, respectively. FDIGX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.74% compared with the category average of 0.76%.
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Buy These 4 Defensive Funds to Beat Market Volatility
Bloodshed on Wall Street, which began earlier this year, continues and has pushed investors toward a bearish mindset. The S&P 500, the DOW and the Nasdaq have given a negative return of 18.15%, 14.80%, and 23.91%, respectively, so far this year.
All the major indexes are in negative territory mainly due to the Federal Reserve’s aggressive hawkish stances to counter inflation and other rising geopolitical tensions.
The consumer price index (CPI) for the month of August rose 0.1%, with a 6.3% increase year on year after remaining unchanged for the month of July. Rents, food and health care mainly accounted for an increase in the CPI.
With inflation numbers at multi decades high and the Fed’s target of 2% looking a distant reality, more interest rate hikes seem inevitable. Such moves will increase the cost of borrowing, impact consumer spending and slow down economic growth, thereby pushing the economy towards a recession.
The Volatility Index measured by VIX closed in at 26.27 on Sep 15, with a 52.56% increase so far this year, reaffirming the panic situation in the market. On the other side, Russia’s war against Ukraine and rising tension between China and Taiwan have led to a further global supply-chain disruption. This, along with fresh COVID-19 protocol implemented in China, has impacted corporate profits as companies will take time to overcome regulatory, financial and technology hurdles.
Looking at the current situation, investing in mutual funds with significant exposure in defensive sectors like consumer staples, healthcare, telecommunication services and utilities seems prudent for investors who wish to diversify and earn a positive return. These funds invest in recession-proof companies that do not get affected by the economic cycle as they produce goods or offer services catering to the basic needs of consumers regardless of market or economic condition. Such funds provide stable returns at a relatively lower level of risk.
Moreover, mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Thus, we have selected four defensive mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive three-year and five-year annualized returns, require minimum initial investments within $5000, and carry a low expense ratio.
Fidelity Select Health Care Services Portfolio (FSHCX - Free Report) invests most of its net assets in common stocks of foreign and domestic issues that are primarily engaged in the ownership or management of hospitals, nursing homes, health maintenance organizations. It also invests in other companies specializing in the delivery of health care services. FSHCX advisors choose to invest in stocks based on fundamental analysis factors like financial condition, industry position, as well as market and economic conditions.
Justin Segalini has been the lead manager of FSHCX since Jan 28, 2016, and most of the fund’s exposure is in companies like Unitedhealth Group (24.11%), Cigna (8.27%) and Humana (8.06%) as of 5/31/2022.
FSHCX’s three-year and five-year annualized returns are 20.2% and 15.1%, respectively. FSHCX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.71% compared with the category average of 1.03%.
To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Fidelity Select Utilities Portfolio (FSUTX - Free Report) invests most of its net assets in common stocks of foreign and domestic issues that are primarily engaged in the utility industry or companies deriving a majority of their revenues from utility operations. FSUTX advisors choose to invest in stocks based on fundamental analysis factors like financial condition, industry position, as well as market and economic conditions.
Douglas Simmons has been the lead manager of FSUTX since Oct 2, 2006, and most of the fund’s exposure is in companies like Nextera Energy (14.61%), Southern Co (7.99%) and Sempra (6.04%) as of 5/31/2022.
FSUTX’s three-year and five-year annualized returns are 10.12% and 10.73%, respectively. FSUTX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.73% compared with the category average of 0.94%.
Fidelity Telecom and Utilities Fund (FIUIX - Free Report) invests most of its net assets in common stocks of foreign and domestic companies that are engaged in telecommunications services companies and utility companies. FIUIX advisors use fundamental analysis techniques like financial condition, industry position, as well as market and economic conditions to select investment.
Douglas Simmons has been the lead manager of FIUIX since Sept 30, 2005, and most of the fund’s exposure is in companies like Nextera Energy (9.29%), AT&T (9.15%) and T-Mobile US (8.57%) as of 4/30/2022.
FIUIX’s three-year and five-year annualized returns are 6.9% and 8.0%, respectively. FIUIX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.60% compared with the category average of 0.94%.
Fidelity Select Consumer Staples Portfolio (FDIGX - Free Report) invests most of its net assets in common stocks of foreign and domestic companies that are principally engaged in the business of manufacture, sale, or distribution of consumer staples. FDIGX advisors select investments based on fundamental analysis techniques like financial condition, industry position as well as market and economic conditions.
Ben Shuleva has been the lead manager of FDIGX since Jan 1, 2020, and most of the fund’s exposure is in companies like Coca-cola (15.29%), Procter & Gamble (13.41%) and Walmart (7.10%) as of 5/31/2022.
FDIGX’s three-year and five-year annualized returns are 9.3% and 6.7%, respectively. FDIGX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.74% compared with the category average of 0.76%.
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 >>