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Buy These 3 Defensive Funds to Beat Market Volatility
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The bearish trend continues in the stock market. The Federal Reserve in its September policy meeting has provided an interim relief by keeping overnight interest rates unchanged at the 5.25-5.5% range, the highest in more than 22 years. It has also hinted at the possibility of another rate hike till the end of this year, if needed, to meet the targeted inflation of 2%.
The Consumer Price Index (CPI) showed a favorable decline till June, with the inflation rate at 3%. CPI gradually moved up 3.2% year on year in July and a further 3.7% in August. This was mostly due to inflated oil prices. Though current inflation is well above the Fed’s target, further rate hikes would cripple the economy if the Fed fails to make a soft landing for the economy.
Retail sales for the month of August rose 0.6% from a 0.5% increase in July mostly due to a big rise in oil prices. After hitting a 10-month high, oil prices are hovering significantly higher due to an increase in oil demand amid tighter supply. After the decision of OPEC+ members to cut oil supply by 1.3 million barrels per day till the end of 2023, analysts are expecting crude prices to reach $100/barrel.
The Fed expects further easing in the labor market. According to the data released by the Bureau of Labor Statistics on Sep 1, 187,000 jobs were added for the month of August, while unemployment unexpectedly rose to 3.8%, the highest since February 2022. The number suggests the labor market is still tight while softening.
In this present situation, investing in mutual funds that have significant exposure in defensive sectors like consumer staples, healthcare, and utilities seems can help investors to preserve their capital and earn a positive return amid uncertainties. These funds invest in recession-proof companies that are not affected by the economic cycle as these companies produce goods or offer services that cater to the basic needs of consumers who will buy them regardless of the state of the market or the economy. This type of fund provides stable returns at a relatively lower level of risk regardless of market direction.
Thus, we have selected three such 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, minimum initial investments within $5000, and carry a low-expense ratio compared to the category average.
Fidelity Select Utilities Portfolio (FSUTX - Free Report) fund 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 1, 2006, and most of the fund’s exposure is in companies like Nextera Energy (14.8%), Southern (13.1%) and Sempra (7%) as of 5/31/2023.
FSUTX’s three-year and five-year annualized returns are 9.8% and 7.2%, respectively. FSUTX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.74%, compared with the category average of 0.94%.
To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Vanguard Health Care (VGHCX - Free Report) fundinvests most of its net assets in domestic and foreign companies which are engaged in the development, production, or distribution of products and services related to the healthcare industry. VGHCX advisors may also invest in companies that are associated with medical, diagnostic, biochemical, and other research and development activities.
Jean M Hynes has been the lead manager of VGHCX since May 28, 2008, and most of the fund’s exposure is in companies like Eli Lilly (6.1%), UnitedHealth Group (6.0%) and Astrazeneca (5.9%) as of 4/30/2023.
VGHCX’s three-year and five-year annualized returns are 6.2% and 7.7%, respectively. VGHCX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.34%, compared with the category average of 1.03%.
Fidelity Select Consumer Staples Portfolio (FDIGX - Free Report) fund 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 Dec 31, 2019, and most of the fund’s exposure is in companies like Procter & Gamble (14.8%), Coca-cola (14.2%) and Mondelez International (6.5%) as of 5/31/2022.
FDIGX’s three-year and five-year annualized returns are 8.3% and 9.4%, 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 3 Defensive Funds to Beat Market Volatility
The bearish trend continues in the stock market. The Federal Reserve in its September policy meeting has provided an interim relief by keeping overnight interest rates unchanged at the 5.25-5.5% range, the highest in more than 22 years. It has also hinted at the possibility of another rate hike till the end of this year, if needed, to meet the targeted inflation of 2%.
The Consumer Price Index (CPI) showed a favorable decline till June, with the inflation rate at 3%. CPI gradually moved up 3.2% year on year in July and a further 3.7% in August. This was mostly due to inflated oil prices. Though current inflation is well above the Fed’s target, further rate hikes would cripple the economy if the Fed fails to make a soft landing for the economy.
Retail sales for the month of August rose 0.6% from a 0.5% increase in July mostly due to a big rise in oil prices. After hitting a 10-month high, oil prices are hovering significantly higher due to an increase in oil demand amid tighter supply. After the decision of OPEC+ members to cut oil supply by 1.3 million barrels per day till the end of 2023, analysts are expecting crude prices to reach $100/barrel.
The Fed expects further easing in the labor market. According to the data released by the Bureau of Labor Statistics on Sep 1, 187,000 jobs were added for the month of August, while unemployment unexpectedly rose to 3.8%, the highest since February 2022. The number suggests the labor market is still tight while softening.
In this present situation, investing in mutual funds that have significant exposure in defensive sectors like consumer staples, healthcare, and utilities seems can help investors to preserve their capital and earn a positive return amid uncertainties. These funds invest in recession-proof companies that are not affected by the economic cycle as these companies produce goods or offer services that cater to the basic needs of consumers who will buy them regardless of the state of the market or the economy. This type of fund provides stable returns at a relatively lower level of risk regardless of market direction.
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 three such 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, minimum initial investments within $5000, and carry a low-expense ratio compared to the category average.
Fidelity Select Utilities Portfolio (FSUTX - Free Report) fund 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 1, 2006, and most of the fund’s exposure is in companies like Nextera Energy (14.8%), Southern (13.1%) and Sempra (7%) as of 5/31/2023.
FSUTX’s three-year and five-year annualized returns are 9.8% and 7.2%, respectively. FSUTX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.74%, compared with the category average of 0.94%.
To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Vanguard Health Care (VGHCX - Free Report) fundinvests most of its net assets in domestic and foreign companies which are engaged in the development, production, or distribution of products and services related to the healthcare industry. VGHCX advisors may also invest in companies that are associated with medical, diagnostic, biochemical, and other research and development activities.
Jean M Hynes has been the lead manager of VGHCX since May 28, 2008, and most of the fund’s exposure is in companies like Eli Lilly (6.1%), UnitedHealth Group (6.0%) and Astrazeneca (5.9%) as of 4/30/2023.
VGHCX’s three-year and five-year annualized returns are 6.2% and 7.7%, respectively. VGHCX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.34%, compared with the category average of 1.03%.
Fidelity Select Consumer Staples Portfolio (FDIGX - Free Report) fund 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 Dec 31, 2019, and most of the fund’s exposure is in companies like Procter & Gamble (14.8%), Coca-cola (14.2%) and Mondelez International (6.5%) as of 5/31/2022.
FDIGX’s three-year and five-year annualized returns are 8.3% and 9.4%, 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 >>