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Mutual Fund Commentary

After his surprising victory in the Presidential election, Donald Trump called on all Americans to “come together as one united people.” Trump’s composed demeanor after becoming the 45th U.S. President seemed to soothe investor sentiment.

Investors geared up for a Republican Presidency and focused on financial services, industrials and healthcare sectors which garnered significance in Trump’s speeches. Mutual funds which have significant exposure to these sectors are expected to gain in the coming months.

What Made Trump The President?

It came as a surprise for many when Mr. Trump addressed the world as the new president for “all Americans.” Strong support from white voters without college degrees led Trump to this victory. According to the exit poll conducted by Edison Research for the National Election Pool, Hillary Clinton did manage to gain 9% lead in votes from college graduates over Trump, but Trump had a 8% lead over Clinton among the non-college graduates votes. Moreover, 67% or two-thirds of non-college whites supported Trump, while only 28% backed Clinton.

Further, Trump managed to fare better among Hispanics and the black population than the 2012 Republican candidate Mitt Romney. As compared to Obama’s 87-point advantage, Clinton maintained an 80-point lead among black people. Additionally, Trump’s unorthodox approach and FBI Director James Comey’s comments on restarting the investigation on Hillary Clinton’s personal email server also resulted to Trump’s victory.

Sectors Expected To Gain

Financial Services

After Trump’s victory investors moved away from bond markets, following which bond prices fell on lower demand. This in turn had a positive impact on the banking sector. Meanwhile, after the 2008 crisis, a prolonged period of low interest rates has weighed on the net income of banks. However, with the beginning of a Republican government, it is expected that Trump may get “rid of Dodd-Frank” regulations.

The broader Financial Services Select Sector SPDR (XLFS) has jumped 15.2% in the last six months and was the biggest gainer among the S&P 500 sectors. Moreover, financial mutual funds have posted a three-month positive return of 7.2%, according to Morningstar.

Industrials

Donald Trump is in favor of increasing public spending on infrastructure by a trillion of dollars over the next 10 years. In fact, he is expected to offer $137 billion in tax credits to private construction companies undertaking infrastructure projects. Trump’s spending proposal and a low rate environment would likely to make a positive impact on the industrials industry.

The Industrials Select Sector SPDR (XLI) has climbed 8.2% in the last six months and was one of the best performers among the S&P 500 sectors. Moreover, industrial mutual funds have posted a three-month positive return of 4.2%, according to Morningstar.

Healthcare

Both Clinton and Trump are in agreement that there are problems regarding drug pricing. However, with Trump’s victory, Clinton-induced price-gouging issues are no longer a concern for the healthcare and biotech companies. The Health CareSelect Sector SPDR (XLV) has increased 1.4% in the last six months.

Buy These 6 Sectoral Mutual Funds

Here we have selected two mutual funds from each of the three sectors – financial services, industrials and healthcare –that have a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy).These funds have an encouraging 3-year return and minimum initial investment is within $5000. Also, these funds have low expense ratios.

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.

Financial Services

Fidelity Select Consumer Finance Portfolio (FSVLX - Free Report) invests more than 80% of its assets in equity securities of companies involved in offering services related to consumer finance.This Zacks Mutual Fund Rank #1 fund has 3-year return of 4.2%. It has an expense ratio of 0.89% as compared to the category average of 1.40%.

JHancock Regional Bank A(FRBAX - Free Report) invests a large portion of its net assets in equity securities of regional banks and lending companies. This Zacks Mutual Fund Rank #2 fund has 3-year return of 12.2%. It has an expense ratio of 1.26% as compared to the category average of 1.40%.

Industrials

Fidelity Select Industrials (FCYIX - Free Report) invests the bulk portion of its assets in securities of companies involved in manufacture, development, sales and distribution of industrial products and equipments. This Zacks Mutual Fund Rank #1 fund has 3-year return of 6.5%. It has an expense ratio of 0.76% as compared to the category average of 1.28%.

Fidelity Select Industrial Equipment Portfolio (FSCGX - Free Report) invests the lion’s share of its assets in the companies which are engaged in the industrial sector. This Zacks Mutual Fund Rank #1 fund has 3-year return of 5.8%. It has an expense ratio of 0.82% as compared to the category average of 1.28%.

Healthcare

Live Oak Health Sciences Fund (LOGSX - Free Report) invests a large portion of its assets in equity securities of health companies that are involved in the research, development, production, or distribution of products or services related to health care, medicine, or the life sciences. This Zacks Mutual Fund Rank #1 fund has 3-year return of 10%. It has an expense ratio of 1.08% as compared to the category average of 1.32%.                                              

Schwab Health Care (SWHFX - Free Report) invests a large portion of its assets in equity securities issued by companies in the health care sector. This Zacks Mutual Fund Rank #2 fund has 3-year return of 10%. It also has an expense ratio of 0.79% as compared to the category average of 1.32%.

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