The U.S. Bureau of Economic Analysis stated, in its second estimate of third-quarter, that America’s gross domestic product grew at an unrevised 33.1% annualized rate. The report also firmly established the fact that the American economy’s longest phase of expansion is likely to continue in the third quarter.

It should be noted that the U.S. economy contracted at a rate of 31.4% in the previous quarter. This marked its deepest contraction since 1947, when the U.S. government started maintaining records of the country’s economic growth.

Another bright spot for the U.S. economy is its industrial sector. Per the latest report from the Federal Reserve, U.S. industrial production rose 1.1% in October, surpassing the consensus estimate of 1% growth. The metric rebounded from the revised decline 0.4% in September.

Furthermore, manufacturing output rose 1% in October, surpassing the 0.1% growth in the previous month. Also, index for utilities increased 3.9% after declining 5.2% in September.

Notably, production of business equipment increased 0.6% in October, while the indexes for defense and space equipment, construction supplies, business supplies, and materials each advanced 1% or more in the previous month.

Under such circumstances, risk-loving investors should consider parking their money in mutual funds with high Treynor ratios. Notably, the Treynor ratio equates excess returns over the risk-free rate to the additional risk taken by an investor.

What Does Treynor Ratio Mean for Mutual Funds?

Treynor ratio, also sometimes referred to as the reward-volatility ratio, essentially measures how successful an investment is in terms of returns, taking into consideration the inherent level of risk involved. This ratio was developed by Jack L. Treynor. Mathematically, the Treynor ratio is calculated as follows:

Treynor Ratio = (Rp – Rf)/βp

Where,

• Rp = Expected Portfolio Return
• Rf – Risk Free Rate
• Beta(p) = Portfolio Beta

The Treynor ratio assumes that since risk is an unavoidable element of any investment, it has to be fined. Moreover, the higher the value of the Treynor ratio, the better it is from an investor’s perspective because it indicates greater returns generated from high risks.

3 Best Choices

We have, thus, selected 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 five-year returns. Additionally, the minimum initial investment is within $5000 and each of these funds has a high three-year Treynor ratio.

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).

American Funds Inflation Linked Bond Fund Class F-2 (BFIGX Quick QuoteBFIGX - Free Report) seeks to provide inflation protection as well as income by investing mainly in inflation linked securities. The fund invests the lion’s share of its assets in inflation linked bonds issued by U.S. and non-U.S. governments, their agencies or instrumentalities, and corporations. .

This mutual fund 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.

BFIGX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.43%, which is below the category average of 0.72%. The fund has one and three-year returns of 6.2% and 4.9%, respectively. BFIGX had a Treynor ratio of 5.66 in the last three years.

Strategic Advisers Core Income Fund (FPCIX Quick QuoteFPCIX - Free Report) seeks a high level of current income by investing primarily in investment-grade debt securities of various types and repurchase agreements for the same. The fund invests about 30% of its assets in high yield and emerging market debt securities. It invests in both U.S. and non-U.S. companies.

This High Yield-Bonds product has a history of positive total returns for over 10 years. To see how this fund performed compared with its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FPCIX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.44%, which is below the category average of 0.80%. The fund has three and five-year returns of 5.4% and 4.7%, respectively. FPCIX had a Treynor ratio of 3.6 in the last three years.

Fidelity Select Software & IT Services Portfolio (FSCSX Quick QuoteFSCSX - Free Report) fund invests the majority of its assets in companies whose primary operations are related to software or information-based services. It primarily focuses on acquiring common stocks of both domestic and foreign companies.

This Sector - Tech 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.

FSCSX carries a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.71%, which is below the category average of 1.25%. The fund has three and five-year returns of 22% and 22.3%, respectively. FSCSX had a Treynor ratio of 19.8 in the last three years.

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