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Recession fears have been looming large lately amid Fed’s extremely dovish stance and slowing global economic growth. A reliable indicator of recession also flashed red last week, adding to investors’ worries.
Although investors regained some optimism over resumed U.S.-China trade negotiations, they could not shed recession fears entirely. Therefore, at present, it’s prudent to invest in funds that grow on the back of unfailing demand.
Treasury Yield Curve Inversion
A closely watched measure, the yield curve inverted for a brief while on Mar 22, igniting fears of a possible recession. The yield on the 10-year Treasury note hit a 15-month low of 2.44% against the 3-month Treasury note, which closed at 2.46%. While the latter has remained constant since then, the former edged down to 2.43% on Mar 25 and 2.41% on Mar 26.
This is the first time that the 10-year Treasury note has dropped below the 3-month Treasury note since mid-2007. A yield curve inversion has been an indicator of every U.S. recession since 1955 with just one exception, per the Federal Reserve of San Francisco.
A yield curve maps the path of returns provided by government bonds of same quality but of different maturity periods until the principal amount has been paid. A yield curve inversion occurs when returns on shorter duration securities are higher than those of longer duration ones.
This means that investors are willing to pay a premium for long-term bonds. This implies that they are taking a dim view of the economy in the short term.
Global Economic Slowdown, Fed’s New-Found Dovishness
But the inverted yield curve isn’t the only thing worrying U.S. investors. Contraction in Germany’s manufacturing sector for the third consecutive month in March indicated slowing growth in the Eurozone.
Germany’s federal statistics office data in February showed that the European country may have narrowly escaped a recession in the fourth quarter, with the economy growing 0.0% from third-quarter 2018. This data comes amid rising concerns over global economic slowdown.
In addition, Federal Reserve indicated last week that it wasn’t planning on further interest rate hikes (currently in a range of 2.25%-2.5%) this year and will conclude the process of reducing its balance sheet in six months. The central bank’s overly accommodative stance could be an indication that it is preparing for an imminent economic slowdown.
Time to Invest in Consumer Staples and Healthcare
In such a scenario, mutual funds that invest in consumer staples and healthcare are ideal. The nature of products and services these sectors provide seldom witness a decline in demand even during an economic downturn or recession. Their consistent demand makes them great choices to invest in difficult times.
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).
Our Choices
We have selected three mutual funds for your portfolio that largely invest in healthcare and consumer staples. These funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5,000.
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.
Healthcare
Eaton Vance Worldwide Health Sciences R (ERHSX - Free Report) seeks long-term capital appreciation by investing in a diverse portfolio of healthcare companies. The fund invests the majority of its assets in securities of companies that are mostly engaged in development, production and distribution of products that are related to scientific advances in healthcare. These may include pharmaceuticals, biotechnology, medical equipment and supplies etc.
This Sector – Health product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
ERHSX has a Zacks Rank #1 and an annual expense ratio of 1.25%, which is below the category average of 1.28%. The fund has three and five-year returns of 9.4% and 6.7% respectively.The fund has a minimum initial investment of $1000.
Invesco Health Care Y (GGHYX - Free Report) aims for long-term capital growth by investing 80% of its net assets in securities of companies that are mainly engaged in healthcare-related industries. The fund invests in equity securities, depository receipts and securities convertible into equity securities.
This Sector – Health product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
GGHYX has a Zacks Rank #2 and an annual expense ratio of 0.85%, which is below the category average of 1.28%. The fund has three and five-year returns of 10.7% and 5.6% respectively.The fund has a minimum initial investment of $1000.
Consumer Staples
Fidelity Advisor Consumer Staples A (FDAGX - Free Report) seeks capital growth. FDAGX invests the majority of its assets in securities of companies that are engaged in the manufacturing, sale or distribution of consumer staples. The non-diversified fund invests mainly in common stocks of companies. FDAGX invests in both U.S. and non-U.S. companies.
This Sector – Other product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
FDAGX has a Zacks Rank #2 and an annual expense ratio of 1.05%, which is below the category average of 1.22%. The fund has three and five-year returns of 3.1% and 5.2% respectively.The fund has a minimum initial investment of $2500.
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3 Funds to Buy as Fears of Recession Rise
Recession fears have been looming large lately amid Fed’s extremely dovish stance and slowing global economic growth. A reliable indicator of recession also flashed red last week, adding to investors’ worries.
Although investors regained some optimism over resumed U.S.-China trade negotiations, they could not shed recession fears entirely. Therefore, at present, it’s prudent to invest in funds that grow on the back of unfailing demand.
Treasury Yield Curve Inversion
A closely watched measure, the yield curve inverted for a brief while on Mar 22, igniting fears of a possible recession. The yield on the 10-year Treasury note hit a 15-month low of 2.44% against the 3-month Treasury note, which closed at 2.46%. While the latter has remained constant since then, the former edged down to 2.43% on Mar 25 and 2.41% on Mar 26.
This is the first time that the 10-year Treasury note has dropped below the 3-month Treasury note since mid-2007. A yield curve inversion has been an indicator of every U.S. recession since 1955 with just one exception, per the Federal Reserve of San Francisco.
A yield curve maps the path of returns provided by government bonds of same quality but of different maturity periods until the principal amount has been paid. A yield curve inversion occurs when returns on shorter duration securities are higher than those of longer duration ones.
This means that investors are willing to pay a premium for long-term bonds. This implies that they are taking a dim view of the economy in the short term.
Global Economic Slowdown, Fed’s New-Found Dovishness
But the inverted yield curve isn’t the only thing worrying U.S. investors. Contraction in Germany’s manufacturing sector for the third consecutive month in March indicated slowing growth in the Eurozone.
Germany’s federal statistics office data in February showed that the European country may have narrowly escaped a recession in the fourth quarter, with the economy growing 0.0% from third-quarter 2018. This data comes amid rising concerns over global economic slowdown.
In addition, Federal Reserve indicated last week that it wasn’t planning on further interest rate hikes (currently in a range of 2.25%-2.5%) this year and will conclude the process of reducing its balance sheet in six months. The central bank’s overly accommodative stance could be an indication that it is preparing for an imminent economic slowdown.
Time to Invest in Consumer Staples and Healthcare
In such a scenario, mutual funds that invest in consumer staples and healthcare are ideal. The nature of products and services these sectors provide seldom witness a decline in demand even during an economic downturn or recession. Their consistent demand makes them great choices to invest in difficult times.
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).
Our Choices
We have selected three mutual funds for your portfolio that largely invest in healthcare and consumer staples. These funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5,000.
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.
Healthcare
Eaton Vance Worldwide Health Sciences R (ERHSX - Free Report) seeks long-term capital appreciation by investing in a diverse portfolio of healthcare companies. The fund invests the majority of its assets in securities of companies that are mostly engaged in development, production and distribution of products that are related to scientific advances in healthcare. These may include pharmaceuticals, biotechnology, medical equipment and supplies etc.
This Sector – Health product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
ERHSX has a Zacks Rank #1 and an annual expense ratio of 1.25%, which is below the category average of 1.28%. The fund has three and five-year returns of 9.4% and 6.7% respectively.The fund has a minimum initial investment of $1000.
Invesco Health Care Y (GGHYX - Free Report) aims for long-term capital growth by investing 80% of its net assets in securities of companies that are mainly engaged in healthcare-related industries. The fund invests in equity securities, depository receipts and securities convertible into equity securities.
This Sector – Health product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
GGHYX has a Zacks Rank #2 and an annual expense ratio of 0.85%, which is below the category average of 1.28%. The fund has three and five-year returns of 10.7% and 5.6% respectively.The fund has a minimum initial investment of $1000.
Consumer Staples
Fidelity Advisor Consumer Staples A (FDAGX - Free Report) seeks capital growth. FDAGX invests the majority of its assets in securities of companies that are engaged in the manufacturing, sale or distribution of consumer staples. The non-diversified fund invests mainly in common stocks of companies. FDAGX invests in both U.S. and non-U.S. companies.
This Sector – Other product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
FDAGX has a Zacks Rank #2 and an annual expense ratio of 1.05%, which is below the category average of 1.22%. The fund has three and five-year returns of 3.1% and 5.2% respectively.The fund has a minimum initial investment of $2500.
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 >>