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Mutual Fund Commentary

Of late, investors have been hoping that President-elect Donald Trump’s economic agenda will result in strong growth for the domestic economy. Such expectations have helped markets register their third consecutive weekly gains, with all key indexes reaching record highs. The Dow Jones Industrial Average (DJI) moved past the 19,000 mark for the first time ever.

Stable gains in companies from industrial, healthcare, restaurants and financial sector boosted the blue-chip index and other major benchmarks. Mutual funds with significant exposure to some of these blue-chip companies can be considered as wise investment choices. This is because rising hopes of higher economic growth and strong financial position of blue-chip companies are expected to have a positive impact on such mutual funds.

Dow Rallies Over 19,000

The index has been on a bull run since the presidential election, registering three consecutive weeks of gains Since Nov 8, the Dow has gained 4.5% or around 800 points, moving past the 19,000 mark for the first time. Moreover, the blue-chip index gained 1.5% or nearly 300 points over last week. Investors’ high hopes regarding Trump’s proposed economic policies like higher infrastructure spending and looser economic policies resulted in these gains.

Further, if the market continues on an uptrend, the blue-chip index is expected to end the year 9.9% higher, its best gain since 2013. Additionally, markets have benefited from abundant cash flow provided by government bonds, real estate and gold. Also, several other economies have shown signs of growth, which in turn has had a positive impact on investor sentiment.

Why is a Trump Presidency Good for Markets?

Donald Trump is in favor of increasing public spending on infrastructure by a trillion dollars over the next decade. In fact, he is expected to offer $137 billion in tax credits to private construction companies undertaking infrastructure projects. Trump’s spending proposal and tax policies are likely to benefit industrial companies.

Further, Trump may suspend Dodd-Frank regulations and the minimum asset threshold for banking behemoths may be raised to $250 billion from $50 billion, which will boost valuations and bring more flexibility for banking behemoths. Rising Fed rate hike chances also had a positive impact on blue-chip banks.

Additionally, Hillary Clinton was expected to clamp down on drug prices. With Trump’s victory, Clinton-induced price-gouging issues are no longer a concern for healthcare giants. Further, Trump announced plans to “repeal and replace” the Affordable Care Act, better known as Obamacare, which might eventually boost profitability in the sector.

As per Obamacare’s regulations, restaurants with more than 50 full-time staff are required to pay health insurance to around 95% of its total employees. However, if Trump successfully revokes the act, many restaurant chains won’t have to provide health insurance to employees. Trump also might refrain from raising minimum wages, which will help control the overall labor cost.

Buy These 4 Mutual Funds

Here we have selected one mutual fund from each of the four sectors – industrials, financials, healthcare and restaurants – that have a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy).Moreover, we have focused on sector-based funds that have some major blue-chip companies among their top 10 holdings. These funds have an encouraging 3-year return and their 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.

Fidelity Select Industrials (FCYIX - Free Report) seeks capital growth by investing the bulk portion of its assets in securities of companies involved in manufacture, development, sales and distribution of industrial products and equipment.

The fund has 3-year annualized return of 7.3%, and an expense ratio of 0.76% as compared to the category average of 1.28%. FCYIX has a Zacks Mutual Fund Rank #1. Also, there are two Dow components, General Electric Company (GE - Free Report) and United Technologies Corporation (UTX - Free Report) in its top 10 holdings.

Fidelity Select Financial Services Portfolio (FIDSX - Free Report) invests the majority of its assets in common stocks of companies involved in offering financial services to industry and consumers. FIDSX seeks appreciation of capital.

The fund has 3-year annualized return of 7.2%, and an expense ratio of 0.75% as compared to the category average of 1.61%. FIDSX has a Zacks Mutual Fund Rank #1. Further, there is one Dow component, JPMorgan Chase & Co. (JPM - Free Report) in its top 10 holdings.

Fidelity Select Health Care (FSPHX - Free Report) invests the majority of its assets in securities of companies principally engaged in the design, manufacture, or sale of products or services used for or in connection with health care or medicine. 

The fund has 3-year annualized return of 9.5%, and an expense ratio of 0.72% as compared to the category average of 1.37%. FSPHX has a Zacks Mutual Fund Rank #2. Also, there is one Dow component, UnitedHealth Group Incorporated (UNH - Free Report) in its top 10 holdings.

Fidelity Select Leisure Portfolio (FDLSX - Free Report) invests the majority of its assets in securities of companies engaged in the design, production or distribution of goods or services in the leisure and restaurant industries. FDLSX comes under the category of consumer cyclical funds.

The fund has 3-year annualized return of 7.1%, and an expense ratio of 0.78% as compared to the category average of 1.28%. FDLSX has a Zacks Mutual Fund Rank #2. Further, there is one Dow component, McDonald’s Corp. (MCD - Free Report) in its top 10 holdings.

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