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Dow Posts Best Winning Stretch in 8 Months: 4 Fund Picks

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On May 14, the Dow ended in the positive territory for eight straight trading days, its best such feat since Sep. 20, 2017. Additionally, the blue-chip index also went past recent fears of rising inflation and President Trump’s proposal to curb the cost of prescription drugs. Strong first-quarter earnings performance, and fall in the dollar and treasury yields were the key contributors to Dow’s strong winning streak.

In this context, mutual funds with significant exposure to some of these blue-chip companies can be considered wise investment choices. This is because rising hopes of economic growth and strong financial position of blue-chip companies are expected to have a positive impact on these mutual funds.

Exceptional Earnings Performance

The picture so far in Q1 is robust, with earnings growth expected in double digits from the year-earlier level for 13 of the 16 Zacks sectors. Total Q1 earnings for 444 S&P 500 companies that have reported results already are up 24.5% from the same period last year on 9.3% higher revenues, with 77.7% beating EPS estimates and 75% beating revenue estimates. (Read: A Critical Look at the Q1 Earnings Season)

As of May 11, for the S&P 500 index as a whole, 455 index members have now posted Q1 results. Total earnings for the 455 index members that have reported results already are up 24.4% from the same period last year on 9.4% higher revenues, with 77.6% beating EPS estimates and 75.2% beating revenue estimates. (Read: Can Retail Stocks Maintain Their Momentum?)

Lower Inflation Fears Ail Bond Yields, Dollar Weakens

On May 10, soft data on consumer price inflation led to a decline in the 10-year Treasury yield. The Consumer Price Index (CPI) for April increased by 0.2%, coming in below the estimated level of 0.3%. Further, core CPI increased by only 0.1%, lower than the consensus estimate of 0.2%.

This limited its yearly growth to 2.1%, leading to a reduction in concerns that the pace of inflation is increasing. The 10-year yield increased on May 11 but remained below the 3% mark which it had broken earlier in the week. This was mostly a reaction to Trump’s decision to exit the Iran deal, which boosted oil prices.

Meanwhile, for the week ended May 11, the U.S. dollar fell 0.1% to 92.548, registering its first weekly decline since mid April. Fall in treasury yields and a weaker dollar also boosted market sentiment and eventually the Dow.

Buy These 4 Mutual Funds

Here we have selected sector-based funds that have some major blue-chip companies among their top three holdings. All these mutual funds have a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). These funds have encouraging one-year and year-to-date (YTD) returns and their minimum initial investment is within $5000. Also, these funds have 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.

T. Rowe Price Blue Chip Growth Fund (TRBCX - Free Report) seeks capital appreciation for the long run by investing heavily in common stocks of large as well as mid-cap blue-chip companies. The fund focuses on companies that have good financial fundamentals, a seasoned management and strong market position.

TRBCX carries an expense ratio of 0.70% compared with the category average of 1.10%. Moreover, TRBCX requires a minimal initial investment of $2,500. The fund has one-year and YTD returns of 28.2% and 7.6%, respectively.

TRBCX has a Zacks Mutual Fund Rank #1. Further, as of the last filing, Amazon, Facebook and Microsoft were the top holdings for TRBCX. Microsoft is a Dow component.

Fidelity Series Blue Chip Growth (FSBDX - Free Report) invests primarily in those blue-chip companies that are included in the Dow Jones Industrial Average or the S&P 500 index. FSBDX focuses on those blue-chip companies that Fidelity Management & Research Company expects to see above-average growth.

FSBDX carries an expense ratio of 0.59% compared with the category average of 1.10%. Moreover, FSBDX requires a minimal initial investment of $0. The fund has one-year and YTD returns of 23.4% and 4.8%, respectively.

FSBDX has a Zacks Mutual Fund Rank #1. Further, as of the last filing, Alphabet, Amazon and Apple were the top holdings for FSBDX. Apple is a Dow component.

JHancock Blue Chip Growth 1 (JIBCX - Free Report) invests a major portion of its assets in common stocks of large- and mid-cap blue chip growth companies. JIBCX seeks growth of capital and income for the long run. The fund may also invest around one-fourth of its assets in debt securities, preferred stocks and convertible securities.

JIBCX carries an expense ratio of 0.83% compared with the category average of 1.10%. Moreover, JIBCX requires a minimal initial investment of $0. The fund has one-year and YTD returns of 28.1% and 7.6%, respectively.

JIBCX has a Zacks Mutual Fund Rank #2. Further, as of the last filing, Amazon, Facebook and Microsoft were the top holdings for JIBCX. Microsoft is a Dow component.

Fidelity Select Health Care Portfolio (FSPHX - Free Report) seeks capital appreciation by and is managed by Fidelity Group. The fund normally invests a bulk of its assets in common stocks of companies principally engaged in the design, manufacture, or sale of products or services used for or in connection with health care or medicine. 

FSPHX carries an expense ratio of 0.72% compared with the category average of 1.30%. Moreover, FSPHX requires a minimal initial investment of $2,500. The fund has one-year and YTD returns of 15.3% and 7.6%, respectively.

FSPHX has a Zacks Mutual Fund Rank #1. Further, as of the last filing, UnitedHealth, Becton Dickinson and Boston Scientific were the top holdings for FSPHX. UnitedHealth is a Dow component.

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