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3 Funds to Gain From America's Improving Trade Relations

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The year 2020 is proving to be an exciting one on the trade front. This week, the much-awaited initial phase of the U.S.-China trade agreement was signed by the two countries and the U.S. Senate gave a green signal to the U.S.-Mexico-Canada Agreement (USMCA), which now awaits President Donald Trump’s signature.

Mutual fund investors who wish to make the most of these trade deals would find it prudent to invest in a couple of funds that are set to gain ahead.

U.S.-China’s Initial Deal is Promising

On Jan 15, Trump signed the first stage of the U.S.-China trade deal, which indicated a truce between the two countries. The trade dispute between Washington and Beijing, which started in mid-2018 is finally anticipated to be nearing a closure, beginning with the deal signed this week.

Chinese vice premier Liu He joined Trump at the White House to sign the dealin the East Room. This initial deal boosts Chinese purchases of U.S. agricultural, manufacturing and other products, and comprises enforcement mechanisms. China has promised to raise its purchases of U.S. goods and services by $200 billion over a period of two years.

Agricultural purchases account for $32 billion of a total of $200 billion, and consist of oilseeds, meat, cotton and other commodities. Although tariffs on about $360 billion of Chinese products are still intact, the signed pact slashes U.S. tariffs to 7.5% on around $120 billion in Chinese imports, which is a promising start.

White House economic adviser Larry Kudlow told CNBC that the United States will take “proportionate actions” if China doesn’t abide by its commitments and defended the President’s use of import tariffs to push Beijing for negotiation.

U.S. Senate Approves USMCA

In addition to the trade agreement with China, a trade deal with the United States’ biggest trade partners could be on its way. On Jan 16, the U.S. Senateoverwhelmingly approved the USMCA, sending across the agreement to Trump for approval. The Senate’s nod came after a 385-41 vote in the House of Representatives in December.

This new agreement changes the trading rules between the countries. It includes details such as how much of an automobile must be manufactured in North America to trade vehicles duty-free, more penetration into Canada’s dairy market and easier unionization for Mexican workers.

3 Funds to Set Eyes On

We have, therefore, selected three mutual funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) and invest in companies that could gain from the aforementioned trade agreements. Specifically, investors could find consumer staples and industrial products mutual funds enticing at present. In addition, the minimum initial investment for these funds 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).

Fidelity Advisor Consumer Staples Fund Class A (FDAGX - Free Report) aims for capital growth. The fund invests the majority of its assets in securities of companies mostly engaged in the manufacture, marketing or distribution of consumer staples. The non-diversified fund invests primarily in common stocks and may invest in U.S. and non-U.S. companies alike.

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.

FDAGX carries a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 1.05%, which is below the category average of 1.19%. It has returned 31.4% over the period of a year. FDAGX has no minimum initial investment.

Fidelity Select Chemicals Portfolio (FSCHX - Free Report) funds seeks capital appreciation. The fund usually invests a majority of its assets in common stocks of companies primarily engaged in the research, development, manufacture or marketing of products or services related to the chemical process industries. The non-diversified fund invests in both U.S. and non-U.S. issuers.

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.

FSCHX carries a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 0.77%, which is below the category average of 1.36%. It has returned 8.2% over the period of a year. FSCHX has no minimum initial investment.

Fidelity Select Industrials Portfolio (FCYIX - Free Report) aims for capital growth. The fund invests the majority of its assets in companies that manufacture, supply or sell industrial products, services or equipment. The non-diversified fund invests mostly in common stocks and may invest in U.S. and non-U.S. companies alike.

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.

FCYIX carries a Zacks Mutual Fund Rank #2 and has an annual expense ratio of 0.76%, which is below the category average of 1.10%. It has returned 28% over the period of a year. FCYIX has no minimum initial investment.

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