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ISM Manufacturing Index Nudges Up in September: 3 Fund Picks

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The Institute for Supply Management (ISM) stated that its manufacturing index increased for the 113th month on the trot in September.

Such an increase was achieved on the back of robust demand. Despite trade war remaining a concern for factories, manufacturing activities improved steadily, indicating that the U.S. economy has remined largely resilient. Under such circumstances, betting on mutual funds with significant exposure to the manufacturing sector would fetch alluring returns.

Manufacturing Activity Increases for 113th Month

The ISM Manufacturing Index increased to 59.8% last month, in line with the consensus estimate. Although the reading came in lower than 61.3% in August, a level above 50% implies that the manufacturing sector is expanding.

The fall in the metric can therefore be deemed momentary as it stems from concerns related to tariffs. What should rather be noted is that industrial output remained strong in the month as business houses raised spending on machinery and equipment. Further, healthy domestic demand on the back of steadily rising wages, low tax rates and robust labor market conditions kept the sector afloat.

Factors Contributing to Growth

The Production Index surged 63.9% last month, increasing 0.6 percentage points from August. Further, the Employment Index increased to 58.8% in September, registering a 0.3 percentage point increase from August. This was its highest reading since February.

Further, the New Export Orders Index gained 56% in September, an increase of 0.8 percentage points from August. This was the 31st consecutive month of gains for the metric.

Of the 18 manufacturing industries that were surveyed, 15 reported growth. Such industries include textile mills, miscellaneous manufacturing, plastics & rubber products, computer & electronic products, food, beverage & tobacco products, machinery, apparel, leather & allied products and paper products.

3 Best Funds to Buy Now

Given such positives, we have highlighted three mutual funds 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.

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.

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

Fidelity Select Industrials Fund (FCYIX - Free Report) seeks capital appreciation. FCYIX normally invests a large portion of its assets in the common stock of companies principally engaged in the research, development, manufacture, distribution, supply, or sale of materials, equipment, products, or services related to cyclical industries.

This Sector - Other product has a history of positive total returns for over 10 years. Specifically, the fund has returned 14.6% over the three-year and 11.9% over the five-year benchmarks. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

FCYIX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.77%, which is below the category average of 1.04%.

Fidelity Select Automotive Port (FSAVX - Free Report) seeks capital appreciation. This fund invests the majority of its assets in common stocks of companies involved in the manufacture, marketing or sale of automobiles, trucks, specialty vehicles, parts, tires and related services.

This Sector - Other product has a history of positive total returns for over 10 years. Specifically, the fund has returned 6.2% over the three-year and 5.8% over the five-year benchmarks. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

FSAVX has a Zacks Rank #2 and an annual expense ratio of 0.96%, which is below the category average of 1.17%.

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

This Sector - Other product has a history of positive total returns for over 10 years. The fund has returned 22.9% over the three-year and 17.7% over the five-year benchmarks. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

FSDAX sports a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 0.76%, which is below the category average of 1.04%.

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