Back to top

Industrial Output Best since 2014: 3 Top Fund Picks

Read MoreHide Full Article

Industrial production witnessed the strongest gains since Feb 2014 last month. Market watchers expect this increase to help the broader industrial sector stabilize this month. Stable growth in manufacturing, mining and utilities industry groups led industrial production to increase for three straight months after a sloppy start in January.

Given these upbeat trends, investing in mutual funds that have significant exposure to all the three major industry groups could be one of the most suitable investment options at present. Some of the encouraging data that raised hopes for the industrials and manufacturing sectors in near future deserves closer examination.

Industrial Output Posts Best Gain in Three Years

Industrial production in April experienced its biggest gain in nearly three years. The Board of Governors of the Federal Reserve System reported that industrial production increased 1% in April, significantly better than the increase of 0.4% in March. The rise in industrial production last month also exceeded the consensus expectation of a 0.4% increase.

Additionally, capacity utilization advanced from 76.1% to 76.7% in April, more than the consensus expectations of 76.3%. Further, indexes in some of the key market groups also rose last month. All the key industry groups’ data was also encouraging.

Manufacturing, Mining and Utilities Boost Output

Manufacturing output, which accounts for around 75% of total industrial production, increased 1% in April after declining in the prior month. This metric also rose 1.7% year over year. Both durables and nondurables indexes rose 1%, which fueled the pickup in manufacturing output. For durables, motor vehicle production increased 5% while coal and petroleum products production advanced 2.5% among the non-durable items.

Additionally, mining output grew 1.2% last month, after declining 0.4% in March. This was 7.3% higher than the year-ago figure. Utilities production rose 0.7% in April on the back of rising electric power generation and air-conditioning usage.

Market Groups Data Upbeat

Stable growth across all broad categories led consumer goods output to increase by 1.5% in April. Business equipment, which represents about 10% of total industrial output, has also advanced 1.2%. This is a result of an increase in production of information processing, industrials and transit equipment. 

Further, business supplies output rose 0.6% last month. Gains in durable, non-durable and energy materials led overall materials output to rise 0.9%. Material production constitutes around 46% of total industrial output.

Buy These 3 Industrials Mutual Funds

Recent data related to the broader industrials sector clearly indicate that growth has picked up on the back of gains in major industry groups like manufacturing, mining and utilities. This is borne out by the fact that mutual funds related to the major industry groups also registered strong returns. According to Morningstar, the industrials, precious metals and utilities mutual fund posted year-to-date returns of 4.6%, 9.5% and 6.8%, respectively.

Against this encouraging backdrop, we have selected three mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy). Moreover, these funds have impressive year-to-date (YTD) 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 the bulk of its assets in securities of companies involved in manufacture, development, sales and distribution of industrial products and equipment. This non-diversified fund invests both in domestic and foreign companies. FCYIX uses fundamental analysis to select its investment.

The fund has YTD return of 5.1%, and an expense ratio of 0.77% as compared with the category average of 0.83%. Further, as of the last filing, General Electric Co, Honeywell International Inc. and United Technologies Corp were the top holdings for FCYIX .

Vanguard Precious Metals and Mining (VGPMX - Free Report) seeks growth of capital over the long term. The fund invests heavily in the stocks of both domestic and foreign companies which are mostly involved in mining, processing, distribution and marketing of metals or minerals. This non-diversified fund may also invest around one-fifth of its assets in gold, silver and other precious metals coins and bullion.

The fund has YTD return of 9%, and an expense ratio of 0.43% as compared with the category average of 1.10%. Further, as of the last filing, Barrick Gold Corp, Newmont Mining Corp and Agnico Eagle Mines Ltd were the top holdings for VGPMX.

Fidelity Telecom and Utilities (FIUIX - Free Report) seeks returns through growth of capital and income. FIUIX generally invests a major portion of its assets in securities of companies from both telecom and utilities sector. The fund invests not only in U.S. companies, but also in non-U.S. companies. FIUIX is a non-diversified fund.

The fund has YTD return of 3.6%, and an expense ratio of 0.56% as compared to the category average of 0.67%. Further, as of the last filing, AT&T Inc, NextEra Energy Inc and Exelon Corp were the top holdings for FIUIX.

Want key mutual fund info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>

More from Zacks Mutual Fund Commentary

You May Like