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3 Industrial Mutual Funds to Buy as Sector Strength Builds in 2026
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The U.S. industrials sector has delivered a solid performance on Wall Street so far in 2026, reflecting resilience in a year shaped by geopolitical tension and uneven economic signals. The State Street Industrial Select Sector SPDR ETF (XLI) has gained 10.8% year to date, placing it among the stronger-performing cyclical sectors and signaling renewed investor confidence in economically sensitive industries.
A key driver behind this strength has been sustained demand tied to infrastructure and defense spending. Government-backed projects in construction, transportation and energy systems have supported order books for major industrial companies. At the same time, elevated global tensions, particularly around the Iran conflict, have boosted defense-related stocks, which carry significant weight within the sector. This combination has created a steady earnings outlook despite broader market volatility.
Another important factor has been the gradual normalization of supply chains compared to the disruptions seen in prior years. Improved logistics and easing input bottlenecks have allowed industrial firms to stabilize margins and meet pent-up demand. Additionally, capital expenditure cycles remain supportive, with businesses continuing to invest in automation, manufacturing upgrades and energy infrastructure.
The sector has also benefited from a relatively stable economic backdrop in the United States. While growth is not booming, it has remained steady enough to support freight activity, machinery demand, and aerospace recovery. This “not too hot, not too cold” environment has favored industrials, which tend to perform well in mid-cycle conditions.
Overall, the industrials sector’s 2026 performance reflects a blend of policy support, geopolitical tailwinds, and improving operational efficiency, positioning it as a key pillar of market strength this year.
Hence, astute investors might consider such funds at present. Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
We have thus selected two industrial mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive three-year and five-year annualized returns and minimum initial investments within $5000, and carry a low expense ratio.
Fidelity Environment & Alternative Energy (FSLEX - Free Report) invests primarily in global stocks of renewable energy, efficiency, pollution control, water and waste sectors using fundamental analysis, a non-diversified strategy.
Brian Aronson has been the lead manager of FSLEX since 2023. Three top holdings for FSLEX are Tesla (10.5%), Microsoft (10%) and Linde (4.4%).
FSLEX’s 3-year and 5-year annualized returns are 18.3% and 10%, respectively. Its net expense ratio is 0.69%. FSLEX has a Zacks Mutual Fund Rank #1. 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 (FSDAX - Free Report) mainly invests in common stocks, focusing on companies involved in the research, production, or sale of defense and aerospace products or services. FSDAX advisors apply fundamental analysis, evaluating financial health, industry standing and broader market conditions to guide investment decisions.
Clayton Pfannenstiel has been the lead manager of FSDAX since 2021. Three top holdings for FSDAX are GE Aerospace (23.6%), Boeing (12.3%) and Raytheon (12.1%).
FSDAX’s 3-year and 5-year annualized returns are 25.2% and 15.9%, respectively. Its net expense ratio is 0.64%. FSDAX has a Zacks Mutual Fund Rank #2.
Fidelity Select Automotive Portfolio (FSAVX - Free Report) invests primarily in global automotive stocks, including vehicles, parts, and services, using fundamental analysis, following a non-diversified strategy.
Amy Ge has been the lead manager of FSAVX since 2024. Three top holdings for FSAVX are O’Reilly Automotive (13.1%), Toyota Motors (12%) and General Motors (11.9%).
FSAVX’s 3-year and 5-year annualized returns are 9.6% and 2.7%, respectively. Its net expense ratio is 0.79%. FSAVX has a Zacks Mutual Fund Rank #1.
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3 Industrial Mutual Funds to Buy as Sector Strength Builds in 2026
The U.S. industrials sector has delivered a solid performance on Wall Street so far in 2026, reflecting resilience in a year shaped by geopolitical tension and uneven economic signals. The State Street Industrial Select Sector SPDR ETF (XLI) has gained 10.8% year to date, placing it among the stronger-performing cyclical sectors and signaling renewed investor confidence in economically sensitive industries.
A key driver behind this strength has been sustained demand tied to infrastructure and defense spending. Government-backed projects in construction, transportation and energy systems have supported order books for major industrial companies. At the same time, elevated global tensions, particularly around the Iran conflict, have boosted defense-related stocks, which carry significant weight within the sector. This combination has created a steady earnings outlook despite broader market volatility.
Another important factor has been the gradual normalization of supply chains compared to the disruptions seen in prior years. Improved logistics and easing input bottlenecks have allowed industrial firms to stabilize margins and meet pent-up demand. Additionally, capital expenditure cycles remain supportive, with businesses continuing to invest in automation, manufacturing upgrades and energy infrastructure.
The sector has also benefited from a relatively stable economic backdrop in the United States. While growth is not booming, it has remained steady enough to support freight activity, machinery demand, and aerospace recovery. This “not too hot, not too cold” environment has favored industrials, which tend to perform well in mid-cycle conditions.
Overall, the industrials sector’s 2026 performance reflects a blend of policy support, geopolitical tailwinds, and improving operational efficiency, positioning it as a key pillar of market strength this year.
Hence, astute investors might consider such funds at present. Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
We have thus selected two industrial mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive three-year and five-year annualized returns and minimum initial investments within $5000, and carry a low expense ratio.
Fidelity Environment & Alternative Energy (FSLEX - Free Report) invests primarily in global stocks of renewable energy, efficiency, pollution control, water and waste sectors using fundamental analysis, a non-diversified strategy.
Brian Aronson has been the lead manager of FSLEX since 2023. Three top holdings for FSLEX are Tesla (10.5%), Microsoft (10%) and Linde (4.4%).
FSLEX’s 3-year and 5-year annualized returns are 18.3% and 10%, respectively. Its net expense ratio is 0.69%. FSLEX has a Zacks Mutual Fund Rank #1. 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 (FSDAX - Free Report) mainly invests in common stocks, focusing on companies involved in the research, production, or sale of defense and aerospace products or services. FSDAX advisors apply fundamental analysis, evaluating financial health, industry standing and broader market conditions to guide investment decisions.
Clayton Pfannenstiel has been the lead manager of FSDAX since 2021. Three top holdings for FSDAX are GE Aerospace (23.6%), Boeing (12.3%) and Raytheon (12.1%).
FSDAX’s 3-year and 5-year annualized returns are 25.2% and 15.9%, respectively. Its net expense ratio is 0.64%. FSDAX has a Zacks Mutual Fund Rank #2.
Fidelity Select Automotive Portfolio (FSAVX - Free Report) invests primarily in global automotive stocks, including vehicles, parts, and services, using fundamental analysis, following a non-diversified strategy.
Amy Ge has been the lead manager of FSAVX since 2024. Three top holdings for FSAVX are O’Reilly Automotive (13.1%), Toyota Motors (12%) and General Motors (11.9%).
FSAVX’s 3-year and 5-year annualized returns are 9.6% and 2.7%, respectively. Its net expense ratio is 0.79%. FSAVX has a Zacks Mutual Fund Rank #1.
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 >>