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Service Sector Expands For 97 Straight Months: 5 Fund Picks

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The U.S. service sector activity expanded for the 97th consecutive month on the back of a strong upside in business activity and new orders. Out of the 18 key non-manufacturing industries, steady growth in 16 industries gave a boost to service sector activity in February. Following this development, the service sector looks quite attractive and is expected to expand further. Thus, investing in mutual funds having significant exposure to services-related companies seems prudent at this point.

ISM Services Scales New High

The Institute of Supply Management (ISM)reported that its Services Index decreased from 59.9% in January to 59.5% in February. However, the index topped the consensus estimate of 58.4%. Moreover, the U.S. services index posted expansion for 97 straight months. The U.S. service sector continued to expand in February following an increase in business activity and new orders.

Adding to continued expansion, most of the industries offered a positive outlook for the business environment and the economy in general. However, Services Index fell in February from January’s highs following a dip in employment activity.

Business Activity & New Orders Expand

The Business Activity index rose from 59.8% in January to 62.8% in February, registering its 103rd consecutive month of growth. Fifteen industries reported growth in business activity, while only two experienced a decline. Positive comments from industries include improving business conditions and "increased consumer confidence."

February not only experienced growth in business activity but also an increase in new orders for the 85th successive month. New order count rose from 62.7% in January to 64.8% in February. Also, 15 industries experienced expansion whereas only the information industry witnessed contraction in new orders. Talking about new orders, respondents said that “new business gained" and "new customers engaged and onboarded."

Buy These 5 Buy-Ranked Mutual Funds

Following these developments in the economy, investors may consider service sector-related mutual funds. We have selected five mutual funds that flaunt a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging one-year and three-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 Transportation (FSRFX - Free Report) seeks capital growth. FSRFX invests a large part of its assets in securities of companies involved in the design, manufacture and sale of transportation equipment as well as providing transportation services. The non-diversified fund invests in both U.S. and non-U.S. companies.

FSRFX has an annual expense ratio of 0.82%, lower than the category average of 1.29%. The fund has one-year and three-year annualized returns of 12% and 7.2%, respectively. FSRFX has a Zacks Mutual Fund Rank #2.

Wells Fargo Utility and Telecommunications A EVUAX invests heavily in common and preferred stocks and investment-grade debt securities of utilities and telecom service providers. EVUAX also invests around 35% of its assets in convertible debentures of utilities and telecom companies. This non-diversified fund seeks returns through growth of income and capital.

EVUAX has an annual expense ratio of 1.14%, lower than the category average of 1.19%. The fund has one-year and three-year annualized returns of 2.9% and 4.8%, respectively. EVUAX has a Zacks Mutual Fund Rank #2.

Fidelity Advisor Health Care Fund A FACDX seeks appreciation of capital. FACDX invests in securities issued by companies engaged in the design, production and sale of products or services used in the health care sector. The fund normally invests in both U.S. as well as non-U.S. companies.

FACDX has an annual expense ratio of 1.04%, lower than the category average of 1.32%. The fund has one-year and three-year annualized returns of 17% and 4.8%, respectively. FACDX has a Zacks Mutual Fund Rank #2.

Columbia Global Technology Growth Fund A CTCAX invests a large chunk of its assets in common stocks, preferred stocks and securities that are convertible into common or preferred stocks. These equity securities are issued by technology companies that will benefit from technological advancements or improvements.

CTCAX has an annual expense ratio of 1.32%, lower than the category average of 1.39%. The fund has one-year and three-year annualized returns of 39.4% and 22.3%, respectively. CTCAX has a Zacks Mutual Fund Rank #1.

CGM Realty CGMRX invests a major portion of its assets in securities of companies within the real estate domain, irrespective of their market capitalization. CGMRX may invest not more than one-fifth of its assets in securities of companies from sectors other than real estate.

CGMRX has an annual expense ratio of 0.97%, lower than the category average of 1.04%. The fund has one-year and three-year annualized returns of 19.7% and 8%, respectively. CGMRX has a Zacks Mutual Fund Rank #1.

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