Back to top

Image: Bigstock

3 Mutual Funds to Bank on May's Impressive Market Rally

Read MoreHide Full Article

Major U.S. indexes rose in May, mostly pushed by the optimism over businesses and stores reopening in the United States, the government’s stimulus packages and the possibility of a vaccine hitting the markets this year. The rally through May came after stocks hit their bottom in late March. Let us thus take a look at which sectors rose through May. One could consider buying mutual funds that are invested in these sectors to make the most of this rally.

Strong Market Performance in May

Last month was quite eventful for major U.S. indexes. First, Dow Jones Industrial Average managed to cross the impressive 25,000-point mark last week for the first time in more than two months. The index had touched its all-time high of 29,568.57 on Feb 12 before stepping into the coronavirus-induced bear-market on Mar 11. In May, the index gained 4.3%, marking a 36.5% rise from its lowest closing figure of Mar 23.

Second, the broader S&P 500 witnessed 10 out of its 11 sectors rise in May. Sectors such as communication services, technology, healthcare, consumer discretionary, industrials and materials helped the index journey north. Technology Select Sector SPDR Fund (XLK), Communication Services Select Sector SPDR Fund (XLC) and Consumer Discretionary Select Sector SPDR Fund (XLY) were among the top gaining sectors of the index.

Finally, the tech-laden Nasdaq Composite rose 6.8% in May. The index is up 38.3% since Mar 23 and has gained 5.8% so far this year.

Factors to Push Markets Further

As all 50 states gradually reopen with people being allowed to visit restaurants, places of worship, business centers and offices, signs of normalcy among consumers have begun to surface after one of the major downturns in history. Places such as gyms, athletic centers or salons have also become functional, even though with certain rules and regulations. The optimism about reopening of the economy sent investors back to the markets again, so as to grab investment instruments that they had abandoned in March.

The United States has taken a number of steps to fight the economic commotion caused by the pandemic. Congress passed trillions of dollars in fiscal programs, while the Federal Reserve added trillions of dollars in monetary stimulus. The Fed cut its benchmark interest rate twice during March 2020, once by 0.50% and a second time by 1%. The current benchmark rates are between 0% and 0.25%.

Speaking of monetary stimulus, the U.S. House passed a $3 trillion coronavirus relief package in mid-May that would dispatch another round of aid to state and local governments and a second round of $1,200 payments to American taxpayers. The legislation has been dubbed as the Heroes Act.

Finally, news on the front of vaccine trials is also good. Three key players in the biotechnology industry, Moderna, Inc., Novavax, Inc. and Merck & Co., Inc. have been down to business in developing a vaccine for coronavirus.

Moderna is developing a vaccine in collaboration with the National Institute of Allergy and Infectious Diseases. Novavax began human trials of its vaccine candidate in Australia last month. Merck also said that it was working on two potential vaccines and an experimental drug against the novel coronavirus. Finally, GlaxoSmithKline plc (GSK) announced last week that it planned to produce 1 billion doses of a vaccine adjuvant to build immunity against coronavirus next year.

3 Funds to Buy

We have, therefore, selected three mutual funds from sectors such as technology, and healthcare. All of these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). 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).

Janus Henderson Global Technology and Innovation Fund Class A (JATAX - Free Report) aims for capital growth. The fund invests the majority of its assets in securities of those companies that gain from advancements in technology. The fund invests in securities of both U.S. and non-U.S. companies.

This Zacks Sector – Tech 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.

JATAX has an annual expense ratio of 1.01%, which is below the category average of 1.29%. It has returned 21.7% over the past three years. The fund has a minimum initial investment of $2500. JATAX carries a Zacks Mutual Fund Rank #1.

Goldman Sachs Technology Opportunities Fund Class A (GITAX - Free Report) aims for long-term capital appreciation. The fund invests the majority of its assets in securities of technology companies. It may also invest a smaller part of its assets in securities of non-U.S. companies.

This Zacks Sector – Tech 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.

GITAX has an annual expense ratio of 1.25%, which is below the category average of 1.29%. It has returned 20.1% over the past three years. The fund has a minimum initial investment of $1000. GITAX carries a Zacks Mutual Fund Rank #2.

Hartford Healthcare HLS Fund Class IA (HIAHX - Free Report) aims for capital growth over a long period. The fund invests the majority of its assets in securities of healthcare-related companies. It invests across companies of all market capitalizations.

This Zacks Sector – Health 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.

HIAHX has an annual expense ratio of 0.92%, which is below the category average of 1.24%. It has returned 11.2% over the past three years. The fund has no minimum initial investment. HIAHX carries a Zacks Mutual Fund Rank #2.

Want key mutual fund info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week.

Get it free >>


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Janus Henderson Global Tech A (JATAX) - free report >>

Hartford Healthcare HLS IA (HIAHX) - free report >>

Goldman Sachs Tech Opportuns A (GITAX) - free report >>