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Unemployment Rate Falls to 3.9% in July: 5 Fund Picks
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The unemployment rate declined in July after increasing in June, reflecting tight labor market conditions. Also, the U.S. economy experienced steady jobs growth last month, highlighting a better-than-expected jobs report, which in turn indicated a rosier economy.
Professional and business services led job gains, followed by manufacturing, healthcare and restaurants. In this context, we have focused on those mutual funds that have significant exposure to these sectors. But before that, let’s take a peek into the data.
Unemployment Closes Near 18-Year Low
The unemployment rate declined from 4% in June to 3.9% in July. It was quite close to May’s 20-year low level of 3.8%. This pace is also marginally higher than the Federal Reserve’s targeted rate of 3.8%. Also, rate of unemployment was only 0.2% short from the lowest level reached in the last 50 years.
Unemployment rate was lower than the 4% mark for the eighth time since 1970, with “three of those months happened under President Trump in 2018” as pointed out by US Labour Secretary Alexander Acosta. The U6 unemployment rate that includes people forced into part-time work and people only sporadically looking for jobs, also dropped from 7.8% to 7.5%, the lowest level recorded since May 2001.
Additionally, average hourly earnings rose by 0.3% or 7 cents to $27.05 in July, same as the consensus estimate and June’s figure of an increase of 0.2%. Meanwhile, domestic non-farm payrolls advanced only 157,000 in July, per the United States Bureau of Labor Statistics.
Industries That Led Hiring
The economy added 157,000 jobs in July, lower than the consensus estimate of 192,000. Lower job additions were likely an outcome of government job cuts in education during the summer recess and the shutdown of Toys R Us.
In the absence of these factors, job additions would likely have exceeded 200,000. Notably, monthly job additions have averaged 203,000 over the past one year. Job additions for May and June were revised upward by a combined 59,000. Average job additions for the last three months came in at 224,000.
At the forefront of job gains were manufacturing, healthcare, restaurants and construction, which added 37,000, 34,000, 26,000 and 19,000 jobs, respectively. However, leading the pack was professional and business services with 51,000 new jobs. The sector has added 518,000 jobs in the last 12 months.
Buy These 5 Sectoral Mutual Funds
Here, we have selected five mutual funds with significant exposure to sectors that saw strong job additions in July. Moreover, these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). 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 should one be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
These funds also have encouraging one-year returns and minimum initial investment within $5000. Also, each of these funds has a low expense ratio.
Wells Fargo Utility and Telecommunications A (EVUAX - Free Report) invests heavily in common and preferred stocks and investment-grade debt securities of utilities and telecom service providers. EVUAX also invests around 35% of its assets in convertible debentures of utilities and telecom companies.
EVUAX carries an expense ratio of 1.14% compared with the category average of 1.31%. Moreover, EVUAXrequires a minimal initial investment of $1,000. The fund has one-year annualized returns of 3.8%.
EVUAX has a Zacks Mutual Fund Rank #2. Further, Timothy P. O'Brien is the fund manager of EVUAXsince 2002.
T. Rowe Price Financial Services (PRISX - Free Report) seeks both capital growth and current income. The majority of its assets are invested in financial services companies. It may also purchase securities of companies involved in providing financial software. The fund uses fundamental bottom-up analysis in order to select securities.
PRISX carries an expense ratio of 0.85% compared with the category average of 1.41%. Moreover, PRISX requires a minimal initial investment of $2,500. The fund has one-year annualized returns of 13.3%.
PRISX has a Zacks Mutual Fund Rank #1. Further, Gabriel Solomon is the fund manager of PRISX since 2014.
Fidelity Select Health Care Services Portfolio (FSHCX - Free Report) invests a large part of its assets in companies that either own or are involved in operating hospital and nursing homes and are related to the healthcare services sector. The fund invests in securities of both U.S. and non-U.S. companies.
FSHCX carries an expense ratio of 0.77% compared with the category average of 1.35%. Moreover, FSHCX requires a minimal initial investment of $2,500. The fund has one-year annualized returns of 14.9%.
The fund has a Zacks Mutual Fund Rank #1. Moreover, Justin Segalini is the fund manager of FSHCX since 2016.
Prudential Jennison Financial Services A (PFSAX - Free Report) invests a huge portion of its assets in equity securities of asset management companies, securities/brokerage firms, mortgage banking companies, banks, insurance companies, industrial finance companies and leasing companies.
PFSAX carries an expense ratio of 1.34% compared with the category average of 1.41%. Moreover, PFSAX requires a minimal initial investment of $2,500. The fund has one-year annualized returns of 11.6%.
PFSAX has a Zacks Mutual Fund Rank #2. Further, Steven A. Gavios is one of the fund managers of PFSAX since 2017.
Fidelity Select Software & IT Services Portfolio (FSCSX - Free Report) invests the majority of its assets in companies whose primary operations are related to software or information-based services. FSCSX primarily focuses on acquiring common stocks of both domestic and foreign companies. The fund uses fundamental analysis to select companies for investment purposes.
FSCSX carries an expense ratio of 0.73% compared with the category average of 1.41%. Moreover, FSCSX requires a minimal initial investment of $2,500. The fund has one-year annualized returns of 32.6%.
FSCSX has a Zacks Mutual Fund Rank #2. Further, Ali Khan is the fund manager of FSCSX since 2014.
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Unemployment Rate Falls to 3.9% in July: 5 Fund Picks
The unemployment rate declined in July after increasing in June, reflecting tight labor market conditions. Also, the U.S. economy experienced steady jobs growth last month, highlighting a better-than-expected jobs report, which in turn indicated a rosier economy.
Professional and business services led job gains, followed by manufacturing, healthcare and restaurants. In this context, we have focused on those mutual funds that have significant exposure to these sectors. But before that, let’s take a peek into the data.
Unemployment Closes Near 18-Year Low
The unemployment rate declined from 4% in June to 3.9% in July. It was quite close to May’s 20-year low level of 3.8%. This pace is also marginally higher than the Federal Reserve’s targeted rate of 3.8%. Also, rate of unemployment was only 0.2% short from the lowest level reached in the last 50 years.
Unemployment rate was lower than the 4% mark for the eighth time since 1970, with “three of those months happened under President Trump in 2018” as pointed out by US Labour Secretary Alexander Acosta. The U6 unemployment rate that includes people forced into part-time work and people only sporadically looking for jobs, also dropped from 7.8% to 7.5%, the lowest level recorded since May 2001.
Additionally, average hourly earnings rose by 0.3% or 7 cents to $27.05 in July, same as the consensus estimate and June’s figure of an increase of 0.2%. Meanwhile, domestic non-farm payrolls advanced only 157,000 in July, per the United States Bureau of Labor Statistics.
Industries That Led Hiring
The economy added 157,000 jobs in July, lower than the consensus estimate of 192,000. Lower job additions were likely an outcome of government job cuts in education during the summer recess and the shutdown of Toys R Us.
In the absence of these factors, job additions would likely have exceeded 200,000. Notably, monthly job additions have averaged 203,000 over the past one year. Job additions for May and June were revised upward by a combined 59,000. Average job additions for the last three months came in at 224,000.
At the forefront of job gains were manufacturing, healthcare, restaurants and construction, which added 37,000, 34,000, 26,000 and 19,000 jobs, respectively. However, leading the pack was professional and business services with 51,000 new jobs. The sector has added 518,000 jobs in the last 12 months.
Buy These 5 Sectoral Mutual Funds
Here, we have selected five mutual funds with significant exposure to sectors that saw strong job additions in July. Moreover, these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). 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 should one be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
These funds also have encouraging one-year returns and minimum initial investment within $5000. Also, each of these funds has a low expense ratio.
Wells Fargo Utility and Telecommunications A (EVUAX - Free Report) invests heavily in common and preferred stocks and investment-grade debt securities of utilities and telecom service providers. EVUAX also invests around 35% of its assets in convertible debentures of utilities and telecom companies.
EVUAX carries an expense ratio of 1.14% compared with the category average of 1.31%. Moreover, EVUAXrequires a minimal initial investment of $1,000. The fund has one-year annualized returns of 3.8%.
EVUAX has a Zacks Mutual Fund Rank #2. Further, Timothy P. O'Brien is the fund manager of EVUAXsince 2002.
T. Rowe Price Financial Services (PRISX - Free Report) seeks both capital growth and current income. The majority of its assets are invested in financial services companies. It may also purchase securities of companies involved in providing financial software. The fund uses fundamental bottom-up analysis in order to select securities.
PRISX carries an expense ratio of 0.85% compared with the category average of 1.41%. Moreover, PRISX requires a minimal initial investment of $2,500. The fund has one-year annualized returns of 13.3%.
PRISX has a Zacks Mutual Fund Rank #1. Further, Gabriel Solomon is the fund manager of PRISX since 2014.
Fidelity Select Health Care Services Portfolio (FSHCX - Free Report) invests a large part of its assets in companies that either own or are involved in operating hospital and nursing homes and are related to the healthcare services sector. The fund invests in securities of both U.S. and non-U.S. companies.
FSHCX carries an expense ratio of 0.77% compared with the category average of 1.35%. Moreover, FSHCX requires a minimal initial investment of $2,500. The fund has one-year annualized returns of 14.9%.
The fund has a Zacks Mutual Fund Rank #1. Moreover, Justin Segalini is the fund manager of FSHCX since 2016.
Prudential Jennison Financial Services A (PFSAX - Free Report) invests a huge portion of its assets in equity securities of asset management companies, securities/brokerage firms, mortgage banking companies, banks, insurance companies, industrial finance companies and leasing companies.
PFSAX carries an expense ratio of 1.34% compared with the category average of 1.41%. Moreover, PFSAX requires a minimal initial investment of $2,500. The fund has one-year annualized returns of 11.6%.
PFSAX has a Zacks Mutual Fund Rank #2. Further, Steven A. Gavios is one of the fund managers of PFSAX since 2017.
Fidelity Select Software & IT Services Portfolio (FSCSX - Free Report) invests the majority of its assets in companies whose primary operations are related to software or information-based services. FSCSX primarily focuses on acquiring common stocks of both domestic and foreign companies. The fund uses fundamental analysis to select companies for investment purposes.
FSCSX carries an expense ratio of 0.73% compared with the category average of 1.41%. Moreover, FSCSX requires a minimal initial investment of $2,500. The fund has one-year annualized returns of 32.6%.
FSCSX has a Zacks Mutual Fund Rank #2. Further, Ali Khan is the fund manager of FSCSX since 2014.
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 >>