A strong increase in wage growth last year gave indications that the domestic labor market is steadily tightening. As per last month’s job report, average hourly earnings registered its best yearly performance in 2016 in more than seven years. Moreover, after declining in November, average hourly earnings increased in December, leaving a positive impact on the overall labor market.
All the major sectors save financial activities have gained from the increase in average hourly earnings. Some of the sectors that registered strong wage growth are mining, construction, manufacturing, retail, utilities, information technology and leisure. In this context, we have focused on those mutual funds that have significant exposure to these few sectors. But before that, let’s take a peek into the data.
Average Hourly Earnings Post Best Increase Since 2009
According to the U.S. Labor Department, average hourly wages climbed 0.4% or 10 cents in December after falling 0.1% or 2 cents in November. Further, steady gains in employment have pushed up workers’ pay, and in turn took the annual gain last year to 2.9%, reflecting its best increase since the economy started to recover in mid-2009.
Additionally, the U.S. has now experienced 75 consecutive months of job growth and registered the longest stretch of job gains since 1939. Employers have to raise wages to retain their existing employees and attract new talent as Fed policymakers and most experts contend that the economy is at full employment.
Sectors Benefitted From Job Growth
Average hourly earnings in most of the major economic sectors increased last month following wage gains in top and entry-level positions. In the goods-producing industry, the average hourly wages in the mining sector increased by 25 cents in December. Also, average hourly earnings in construction and manufacturing rose by 11 cents and 13 cents, respectively.
In the private service-producing industry, the two key sectors retail and utilities advanced by 11 cents and 31 cents, respectively. Some of the other sectors like information technology and leisure also registered a respective wage growth of 16 cents and 8 cents. In this scenario, mutual funds with considerable exposure to these sectors are expected to be strong investment choices.
Buy These 6 Mutual Funds
Here, we have selected one mutual fund from the six most benefited sectors, namely mining, construction, retail, utilities, information technology and leisure. All the six sector-based mutual funds boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have impressive one-year annualized returns. They also have minimum initial investment within $5000 and 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 Energy (FSENX - Free Report) invests the lion’s share of its assets in securities of company that are engaged in the energy and mining industry. FSENX focuses on acquiring securities of both domestic and foreign companies. It measures the industry position as well as financial and market condition of each company before selecting investments.
FSENX has an annual expense ratio of 0.79%, lower than the category average of 1.52%. The fund has one-year annualized returns of 43.4%. FSENX has a Zacks Mutual Fund Rank #1.
Fidelity Select Industrials (FCYIX - Free Report) seeks capital growth by investing mainly in equity securities. FCYIX invests the bulk of its assets in securities of companies involved in manufacture, constriction, sales and distribution of industrial products and equipment. The fund invests in both U.S. and non-U.S. companies.
FSENX has an annual expense ratio of 0.76%, lower than the category average of 1.30%. The fund has one-year annualized returns of 24.6%. FCYIX has a Zacks Mutual Fund Rank #1.
Fidelity Select Retailing Portfolio (FSRPX - Free Report) invests a large portion of its assets in securities of companies engaged in merchandising finished goods and services primarily to individual consumers. The fund comes under the category of consumer cyclical funds.
FSRPX has an annual expense ratio of 0.80%, lower than the category average of 1.37%. It has one-year annualized returns of 13.7%. FSRPXhas a Zacks Mutual Fund Rank #2.
Fidelity Select Software & IT Services Portfolio (FSCSX - Free Report) invests heavily in companies whose primary operations are related to software or information-based services. FSCSX primarily focuses on acquiring common stocks of both domestic and foreign companies. The fund uses fundamental analysis to select companies for investment purposes.
FSCSX has an annual expense ratio of 0.76%, lower than the category average of 1.45%. The fund has one-year annualized returns of 23.5%. It sports a Zacks Mutual Fund Rank #1.
American Century Utilities Investor (BULIX - Free Report) invests a major portion of its assets in equity securities of companies engaged in the utilities industry. It seeks growth of capital and income for the long run.
BULIX has an annual expense ratio of 0.68%, lower than the category average of 1.24%. The fund has one-year annualized returns of 24.3% and presently carries a Zacks Mutual Fund Rank #1.
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 industries. It comes under the category of consumer cyclical funds.
FDLSX has an annual expense ratio of 0.78%, lower than the category average of 1.37%. The fund has one-year annualized returns of 16.4% and holds a Zacks Mutual Fund Rank #2.
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