Industrial production remained unchanged last month after a forgettable January but reflected growth on a year-over-year basis. Strong gains in manufacturing and mining output managed to offset declines in utilities production, which in turn helped the broader industrial sector overcome January’s declines.
Given these positive trends, mutual funds that have significant exposure to industrials could be suitable investment options. Before short-listing these funds, let’s take a look at the encouraging data that have raised hopes for the industrials sector for the coming months.
Manufacturing, Mining Boost Output
The Board of Governors of the Federal Reserve System reported that industrial production was unchanged sequentially, in contrast to a decrease of 0.1% in January. Also, industrial output grew 0.3% year over year.
Manufacturing output increased 0.5% for the second consecutive month in February and registered the sixth straight month of gains. It also rose 1.2% over the last one year. Gains in production of machinery, fabricated metal products and non-metallic mineral products led the rally in manufacturing output. Additionally, mining production grew 2.7% last month and was also up 1.8% on a yearly basis.
Also, among the market groups, consumer non-energy durables increased 0.3%. Further, the output of business equipment and construction supplies climbed 0.7% and 1.3%, respectively. Indexes for both non-energy materials business supplies advanced over 0.5%. Further, both durable and nondurable materials registered growth. Although, capacity utilization dipped 0.1% last month, it recorded a 0.6% year-over-year increase.
Manufacturing Index, Factory Orders Rally
The ISM Manufacturing Index climbed 3% from January to 57.7 in Feb 2017. Notably, the February value of the manufacturing index was the highest since Aug 2014, when it was 57.9. Strong gains in new orders pushed up manufacturing activity last month. Previously, factory orders rose 1.2% in January after advancing 1.3% in December.
Moreover, an upbeat jobs report had a positive impact on the broader markets. Payroll gains were driven by construction and manufacturing, while wage growth picked up as the labor market continued its steady improvement, indicating a resilient economy. Also, the number of people losing jobs is also at its lowest level than any time since the Vietnam War.
Buy These 3 Industrials Mutual Funds
As discussed above, recent data related to the industrials sector clearly indicates growth. This is borne out by the fact that the Industrial Select Sector SPDR (XLI) gained 15.2% in the last six months, turning out to be the second best performer among the major S&P 500 sectors. Additionally, mutual funds related to this sector also registered strong returns. According to Morningstar, the industrials mutual fund posted year-to-date and one-year returns of 4.8% and 19.7%, respectively.
Against this encouraging backdrop, we have selected three industrial mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong 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 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, development, sales and distribution of industrial products and equipment. The fund invests in both U.S. and non-U.S. companies.
This fund has one-year return of 17.8%, and an expense ratio of 0.76% compared with the category average of 1.29%. FCYIX has a history of positive total returns for over 10 years. Specifically, the fund’s returns are over the three-year and five-year benchmarks at 7.7% and 13%, respectively.
Fidelity Select Transportation (FSRFX - Free Report) seeks capital growth. FSRFXinvests the majority of its assets in securities of companies involved in design, manufacture and sale of transportation equipment and provide transportation services. The non-diversified fund invests in both U.S. and non-U.S. companies.
This fund has one-year return of 18.6%, and an expense ratio of 0.80% compared with the category average of 1.29%. FSRFX has a history of positive total returns for over 10 years. Specifically, the fund’s returns are over the three-year and five-year benchmarks at 11.2% and 16.9%, respectively.
Fidelity Select Industrial Equipment Portfolio (FSCGX - Free Report) invests a large portion of its assets in securities of companies principally engaged in the manufacture, distribution, or service of products and equipment for the industrial sector. FSCGX seeks appreciation of capital and invests in both domestic and foreign companies.
This fund has one-year return of 14.8%, and an expense ratio of 0.82% compared with the category average of 1.29%. FSCGX has a history of positive total returns for over 10 years. Its returns exceed the three-year and five-year benchmarks at 6.2% and 10.5%, respectively.
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