The U.S. manufacturing sector is showing signs of recovery after suffering for over a year. In May, there was a notable increase in new orders for American-made goods, and this positive momentum continued into June as inflationary pressures continued to ease.

While concerns over tariffs persist, expectations that the Federal Reserve may soon start its rate cuts are raising hopes for a sustained revival in manufacturing activity, as cheaper borrowing could drive up demand.

In light of this optimism, it would be wise to invest in funds like Fidelity Select Industrials Portfolio (FCYIX Quick QuoteFCYIX - Free Report) , Fidelity Select Defense & Aerospace Portfolio (FSDAX Quick QuoteFSDAX - Free Report) and Fidelity Select Retailing Portfolio (FSRPX Quick QuoteFSRPX - Free Report) , which are likely to benefit in the near term.

Manufacturing Activity Rebounds

The Commerce Department reported last week that orders for U.S.-manufactured goods jumped 8.2% in May, bouncing back from a revised 3.9% decline in April. On a year-over-year basis, orders were up 3.2% in May.

The rebound was driven largely by a massive 230.8% increase in commercial aircraft orders. Orders also rose in categories like computers and electronics (1.5%), motor vehicles and parts (0.8%), and capital goods excluding aircraft (1.7%), which reflects business investment. Shipments of core capital goods grew 0.4%, and non-defense capital goods orders soared 49.5%.

Meanwhile, the ISM’s June Manufacturing PMI edged up to 49 from 48.5 in May. Although it was below the threshold of 50, which denotes a contraction in the sector, the uptick suggests the sector is beginning to recover. Manufacturing contributes 10.2% to the overall economy.

President Donald Trump’s tariffs on imports have posed challenges for several businesses. However, the administration has been engaging in trade negotiations with multiple nations and has already reached trade deals with several major partners. In addition, growing expectations of a possible interest rate cut as early as July have lifted consumer confidence. Lower borrowing costs are expected to benefit both the manufacturing industry and the wider economy.

3 Best Choices

We have, thus, selected three mutual funds with significant exposure to the manufacturing sector, each carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), that are poised to gain from such factors. Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.

The question here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Fidelity Select Industrials Portfolio fund seeks capital appreciation. FCYIX normally invests at least 80% of its assets in common stocks of companies principally engaged in the research, development, manufacture, distribution, supply, or sale of materials, equipment, products, or services related to cyclical industries. 

Fidelity Select Industrials Portfolio fund has a history of positive total returns for over 10 years. FCYIX has returned 21.5% and 18.1% over the past three and five years, respectively, and has a Zacks Mutual Fund Rank #2. Fidelity Select Industrials Portfolio fund and an annual expense ratio of 0.69%, which is lower than the category average of 0.85%.

To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

Fidelity Select Defense & Aerospace Portfolio invests a huge portion of its assets in the securities of companies involved primarily in the research, manufacturing, and sale of products and services, per the defense or aerospace industries. FSDAX seeks capital growth by investing in both U.S. and non-U.S. companies.

Fidelity Select Defense & Aerospace Portfolio fund has a history of positive total returns for over 10 years. FSDAX has returned 23.4% and 17.3% over the past three and five years, respectively, and has a Zacks Mutual Fund Rank #1. Fidelity Select Defense & Aerospace Portfolio fund and an annual expense ratio of 0.65%, which is lower than the category average of 0.85%.

To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

Fidelity Select Retailing Portfolio invests most of its net assets in securities of companies that are engaged in finished goods, merchandise and services mostly for individual consumers. FSRPX invests in issues of both foreign and domestic companies.

Fidelity Select Retailing Portfolio fund has a history of positive total returns for over 10 years. FSRPX has returned 13.2% and 11% over the past three and five years, respectively, and has a Zacks Mutual Fund Rank #1. Fidelity Select Retailing Portfolio fund has an annual expense ratio of 0.64%, which is lower than the category average of 1.04%.

To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

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