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Mutual Fund Commentary

Recently released economic data indicates that the U.S. economy is on track to witness a far better second half compared to the first this year. Also, the U.S. benchmarks have rebounded remarkably since Donald Trump’s victory in the presidential election to hover around their all-time record highs. In this scenario, it may be ideal for investors to allocate significant portions of their assets in mutual funds that have impressive growth potential.

Improving Manufacturing & Labor Market

The ISM Manufacturing Index reading released this month showed that the manufacturing sector is on a strong footing. While most of the PMI readings came in higher than 50, pointing to an expansion in activity, ISM purchasing manufacturers’ index grew to 51.9 in October from 51.5 in September. Despite being down, ISM Services Index remained above 50%, indicating expansion in the services sector. Separately, factory orders increased for the third consecutive month in September.  Orders increased 0.3% in September after advancing 0.4% in August.

Meanwhile, average hourly earnings increased 10 cents or 0.4% to $25.92 last month, which was preceded by an increase of 8 cents witnessed in September, according to the U.S Department of Labor. Also, it surged 2.8% year on year, which was the biggest rate of increase since Jul 2009. The unemployment rate also declined 0.1 percentage point last month to 4.9%. Moreover, jobless claims number remained below the psychological level of 300,000 for 90 consecutive weeks.

Positive Consumer Spending

Consumers in the U.S also played an important role in boosting the economy in recent months. Personal  consumption  expenditure  rose  0.5%  in  September  in  contrast  to  a  decrease  of 0.1%  in  August,  according  to  the  Commerce  Department.  Consumer spending rose at its fastest level in last three months. Moreover, retail  sales  jumped  0.8%  in October following  a  revised  1% increase  in the  previous  month,  also  higher  than  the  consensus  estimate  of  0.6% rise.  It was the best two-month gain registered in more than two years. Also, consumers are likely to have spent wholeheartedly during the Thanksgiving holiday season, which is expected to help the economy to expand further during the ongoing quarter.

According to a survey by University of Michigan, the Consumer Sentiment Index rose from 87.2 in October to 93.8 this month, easily beating the consensus estimate of 91.4. The Current Economic Conditions Index also hit a four-month high level of 107.3 this month, signaling rising confidence of U.S. consumers in the economy. Separately, the Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) rose at a pace of 0.4% last month, its highest increase in the past six months on the back of significant increase in gasoline prices.

Encouraging Housing Data

Another important sector that is likely to remain on a strong footing is housing. New home construction touched the highest level of 1.323 million in October since Aug 2007. Housing starts surged 25.5% month-over-month, the biggest since Jul 1982. Also, building permits gained 0.3% and 4.6% from September and the year-ago level, respectively, to 1,229,000, outpacing the consensus estimate of 1,202,000.

Separately, existing homes sales rose 2% in October from September to a seasonally adjusted rate of 5.60 million and reached the highest annualized rate in more than nine years. Sales of previously owned homes also came higher than the consensus estimate of 5.43 million. Improving job market may also help prop up housing demand despite higher borrowing costs. The average for a 30-year fixed-rate mortgage jumped to 3.94% from 3.57% last week, according to mortgage giant Freddie Mac. The 15-year fixed-rate mortgage, popular among homeowners who are refinancing increased to 3.14% from 2.88%.

6 Growth Mutual Funds to Buy

This favorable scenario calls investors to give precedence to capital appreciation over dividend payouts. Investing in potential growth mutual funds may help to reach the above goal. These funds focus on realizing an appreciable amount of capital growth by investing in stocks that are projected to rise in value over the long term.

Hence, we have highlighted six growth mutual funds, two from each of three category – Small-, Mid- and Large-Cap, that carry a Zacks Mutual Fund Rank #1 (Strong Buy). 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.

These funds also come with comparatively low expense ratios and with no sales load. Moreover, they have encouraging year-to-date, one-year and three-year annualized returns, and the minimum initial investment is within $5000.

Small-Cap Growth

T. Rowe Price QM US Small-Cap Growth Equity (PRDSX - Free Report) invests the lion’s share of its assets in securities of small-cap growth companies that are located in the U.S. Its annual expense ratio of 0.82% is significantly lower than the category average of 1.31%. This fund has year-to-date, one-year and three-year annualized returns of 12.8%, 8.8% and 8.2%, respectively.

Putnam Small Cap Growth Y (PSYGX - Free Report) invests mainly in common stocks of domestic companies having market capitalizations similar to those listed in the Russell 2000 Growth Index. Its annual expense ratio of 0.97% is significantly lower than the category average of 1.31%. This fund has year-to-date, one-year and three-year annualized returns of 10.4%, 5.2% and 4.6%, respectively.

Mid-Cap Growth

VALIC Company II Mid Cap Growth (VAMGX - Free Report) seeks long-term capital growth. ISMOX invests a large chunk of its assets in stocks of companies, which comes within the range of the Russell Midcap Growth Index. Its annual expense ratio of 0.84% is significantly lower than the category average of 1.26%. This fund has year-to-date, one-year and three-year annualized returns of 6.7%, 4.5% and 3.7%, respectively.

MassMutual Select Mid Cap Growth Equity II Service (MEFYX - Free Report) generally invests in equity securities of growth oriented companies with medium size market capitalizations. Its annual expense ratio of 0.95% is significantly lower than the category average of 1.26%. This fund has year-to-date, one-year and three-year annualized returns of 7.6%, 4.9% and 9.9%, respectively.

Large-Cap Growth

Fidelity Large Cap Growth Enhanced Index (FLGEX - Free Report) invests the major portion of its assets in common stocks of large-cap companies that are included within the Russell 1000 Growth Index. Its annual expense ratio of 0.45% is significantly lower than the category average of 1.16%. This fund has year-to-date, one-year and three-year annualized returns of 7.6%, 4.8% and 9.5%, respectively.

Glenmede Large Cap Growth (GTLLX - Free Report) invests the large chunk of its assets in domestic large cap companies with market capitalizations similar to those listed in the Russell 1000 Index. Its annual expense ratio of 0.87% is significantly lower than the category average of 1.16%. This fund has year-to-date, one-year and three-year annualized returns of 7.7%, 5.7% and 11.8%, respectively.

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