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Limit Your Exposure to Trade War With These 3 Defensive Funds

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The American stock market has been volatile for the past few weeks, leaving investors pondering over the phase one trade deal between the United States and China before the end of this year. President Donald Trump even said earlier this month that it might be better to wait until after 2020 elections to sign a trade agreement with China.

The President’s statement only added to investors’ worries, who now wonder whether the administration will slap 15% import duties on $156 billion worth of Chinese goods post the Dec 15 deadline.

Meanwhile, according to Financial Times, Beijing has ordered all government offices and public institutions to get rid of foreign computer software and equipment within three years. This move could affect American tech giants such as HP, Dell and Microsoft the most.

In fact, this move is China’s attempt to rely on domestic technology companies as the trade war continues to have a harrowing effect on U.S.-China supply chains. Of course, it also comes as a retaliation to Washington’s ongoing ban on American companies to conduct business with Chinese telecom giant Huawei Technologies.

In addition, Huawei said earlier this month that it plans to sue the U.S. government over its newest attempt to ban the company from doing business in America, citing security concerns as the reason.

These hindrances have only worsened the trade scenario between two of the world’s largest economies. Furthermore, the likelihood of the much-awaited phase one trade deal also seems far out of sight. Under such circumstances, betting on mutual funds that have exposure to defensive sectors such as healthcare and consumer staples seems prudent.

Defensive Mutual Funds Look Ideal Right Now

Defensive funds are basically those that strictly focus on investing in defensive sectors such as consumer staples, healthcare and utilities. Defensive sectors are good investments in times of market uncertainties and economic downturns.

This is because these sectors offer the kind of products and services whose demand is less impacted during difficult times. After all, consumers can’t survive without basic necessities such as food, healthcare, electricity or water.

3 Fund Picks

We have, therefore, picked three mutual funds from healthcare and consumer staples sectors. All the three funds carry a Zacks Mutual Fund Rank #1 (Strong Buy). Moreover, these funds have encouraging year-to-date returns. Additionally, the minimum initial investment is within $5,000.

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).

T. Rowe Price Health Sciences Fund (PRHSX - Free Report) seeks long-term capital growth. The fund invests the majority of its assets in common stocks of companies that are engaged in the research, development, production or distribution of products or services in the healthcare sector. PRHSX is a non-diversified fund.

This Zacks sector – Health product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

PRHSX has an annual expense ratio of 0.77%, which is below the category average of 1.27%. It has returned 15.6% on a year-to-date basis and has a minimum initial investment of $2500.

Vanguard Health Care Fund Investor Shares (VGHCX - Free Report) invests the majority of its assets in securities of companies engaged in various operations in the healthcare sector. The fund may also invest about half of its assets in non-U.S. stocks. VGHCX aims for long-term capital appreciation.

This Zacks sector – Health product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

VGHCX has an annual expense ratio of 0.34%, which is below the category average of 1.27%. It has returned 12.4% on a year-to-date basis and has a minimum initial investment of $3000.

Fidelity Select Consumer Staples Portfolio (FDFAX - Free Report) fund aims for capital growth. The fund invests the majority of its assets in securities of companies primarily engaged in the manufacture, sale or distribution of consumer staples. FDFAX mostly invests in common stocks.

This Zacks sector – Other product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FDFAX has an annual expense ratio of 0.77%, which is below the category average of 1.17%. It has returned 25.7% on a year-to-date basis. FDFAX has no minimum initial investment.

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