US Manufacturing Rebounds in March: 3 Funds to Gain

The Institute for Supply Management (ISM) stated that its manufacturing index increased for the 119th consecutive month in March.

Such an increase was achieved on the back of robust demand and tight labor market conditions. Improving situations on the trade war front also added to the overall optimism. Under such circumstances, betting on mutual funds with significant exposure to the manufacturing sector would fetch alluring returns.

Manufacturing Activity Increases for 119th Month

The ISM Manufacturing Index increased to 55.3% in March, surpassing the consensus estimate of 54.5%. A level above 50% implies that the manufacturing sector is expanding.

Chair of the Institute for Supply Management, Timothy R. Fiore stated that “comments from the panel reflect continued expanding business strength, supported by gains in new orders and employment. Demand expansion continued, with the New Orders Index returning to the high 50s.” Further, continuous improvement in the trade war situation between the United States and China has also benefited trade-sensitive sectors.

Factors Contributing to Growth

The new orders index increased 1.9% to 57.4% in March. Meanwhile, the production index increased from 1% to hit 55.8%. Additionally, the prices index increased by 4.9% to 54.3%, reflecting an increase in input prices for the first time since December 2018.

Notably, the employment index increased by 5.2% to hit 57.5%. This marked its largest increase in the last three years, snapping its streak of three consecutive months of declines.

Of the 18 manufacturing industries that were surveyed, 16 reported growth. These industries included printing and related support activities, textile mills, food, beverage and tobacco products, petroleum and coal products, computer and electronic products, electrical equipment, appliances and components and furniture and related 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 Automotive Port FSAVX 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 9.9% over the three-year and 2.8% 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 Mutual Fund Rank #1 and an annual expense ratio of 0.97%, which is below the category average of 1.34%.

Fidelity Select Defense & Aerospace Portfolio FSDAX 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 24.4% over the three-year and 14% 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 1.19%.

Fidelity Select Industrials Fund FCYIX 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 13% over the three-year and 7.5% 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 #2 and an annual expense ratio of 0.77%, which is below the category average of 1.19%.

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