Back to top

Image: Bigstock

3 Funds to Buy as Manufacturing Sector Continues to Expand

Read MoreHide Full Article

The U.S. manufacturing sector has continued to show growth over the months, indicating that the economy is on solid ground despite growing inflationary fears. The manufacturing sector continued to expand in May, although the supply-chain crisis and labor shortage are posing as challenges for manufacturers. 

The jump in May is also an indication that the sector has the potential to perform successfully despite a number of obstacles. Thus, funds like Fidelity Select Automotive Portfolio (FSAVX - Free Report) , Fidelity Select Retailing Portfolio (FSRPX - Free Report) and Fidelity Select Transportation Portfolio (FSRFX - Free Report) are likely to benefit in the near term.

Manufacturing Sector Expands

The Institute for Supply Management (ISM) Manufacturing Index for May came up with a reading of 56.1 %, up 0.7% from April’s reading of 55.4%. Following a contraction in April and May 2020, when industries had to be shut down due to the pandemic's introduction, manufacturing activity has now increased for 24 straight months.

May’s jump once again showed the underlying strength in the country’s economy as people continued to spend despite rising costs. The manufacturing sector managed to expand amid the ongoing challenges like labor shortage and supply-chain crisis.

One of the primary reasons for this is soaring demand for goods and consumption, which is driving production at U.S. factories. The Production Index in May rose to 54.2%, reflecting a jump of 0.6% from April’s reading of 53.6%.

New Orders index recorded a reading of 55.1% in May, increasing 1.6% from 53.5% in April. As many as 15 manufacturing industries reported growth in May, led by Apparel, Leather & Allied Products; Printing & Related Support Activities; Machinery; Nonmetallic Mineral Products; Transportation Equipment; Paper Products, Computer & Electronic Products; Food; Petroleum & Coal Products; Plastics & Rubber Products and Beverage & Tobacco Products.

However, the Employment Index declined to 49.6% in May, 1.3% below April’s reading of 50.9%. The Employment index contracted for the first time in eight months, indicating the acute labor crisis despite employers raising wages.

Manufacturers are raising wages to meet a record numbers of openings, but a labor scarcity is anticipated to impede higher productivity and growth in the coming days. Supply-chain constraints are also severe and still evolving.

However, the manufacturing industry should continue to benefit from increased demand and consumption.

3 Best Choices

We have, thus, selected three mutual funds with significant exposure to the manufacturing sector, each 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.

The question here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Fidelity Select Automotive Portfolio fund aims for capital appreciation. FSAVX invests most of its assets in common stocks of companies engaged in manufacturing automobiles, trucks, specialty vehicles, parts, tires, and related services.

Fidelity Select Automotive Portfolio fund has a history of positive total returns for over 10 years. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

Fidelity Select Automotive Portfolio has a Zacks Mutual Fund Rank #2. FSAVX has returned 25% and 14.6% over the past three and five years, respectively.

Fidelity Select Retailing Portfolio invests most of its net assets in securities of companies that are engaged in finished goods, merchandise and services mostly for individual consumers. FSRPX invests in issues of both foreign and domestic companies.

Fidelity Select Retailing Portfolio fund has a history of positive total returns for over 10 years. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

Fidelity Select Automotive Portfolio has a Zacks Mutual Fund Rank #1. FSRPX has returned 12.5% and 13.3% over the past three and five years, respectively.

Fidelity Select Transportation Portfolio aims for capital appreciation. FSRFX invests the majority of its assets in securities of companies that are primarily involved in the design, manufacture, distribution, or sale of transportation equipment or businesses that are primarily involved in providing transportation services.

Fidelity Select Transportation Portfolio fund has a history of positive total returns for over 10 years. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

Fidelity Select Transportation Portfolio has a Zacks Mutual Fund Rank #2. FSRFX has returned 13.8% and 10.8% over the past three and five years, respectively.

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 >>


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Fidelity Select Retailing (FSRPX) - free report >>

Fidelity Select Transportation (FSRFX) - free report >>

Fidelity Select Automotive (FSAVX) - free report >>