Choosing the best mutual funds for the rest of 2017 — or for any short-term period, for that matter — is sure to be a challenge. It’s not just about choosing the right sector funds, but also having a steady thesis behind making any sort of sector bet.
Before you buy shares of a sector mutual fund for a short period of time (say, a holding period of less than one year), it’s important to note that the overall investment objective still is long-term in nature. In other words, while you can use relatively small allocations in sector funds to make short-term tactical plays, understand that their best use is going to be over the long haul.
Adding one or two sector funds — at allocations of about 5% each — can help diversify a long-term portfolio while increasing potential for higher returns in the short run.
In no particular order, here are three sector mutual funds that have market-beating potential for the remainder of 2017:
Best Sector Mutual Funds: Fidelity Select Defense & Aerospace Portfolio (FSDAX)
Expenses: 0.79%, or $79 annually per every $10,000 invested
Minimum Initial Investment: $2,500
Escalation of military tough talk, along with recently developing plans for increasing U.S. troops in Afghanistan, is boosting defense sector funds like Fidelity Select Defense & Aerospace Portfolio (MUTF:FSDAX).
FSDAX is a top performer among funds that invest in defense and aerospace stocks like Northrop Grunman Corp (NYSE:NOC), General Dynamics Corporation (NYSE:GD), and United Technologies Corp (NYSE:UTX). This is also a very concentrated portfolio of just 40 holdings, with the top 10 of those making up roughly two-thirds of the fund’s weight.
More international saber rattling and geopolitical challenges could make defense stock sector funds like FSDAX winners in 2017 and beyond.
Best Sector Mutual Funds: T. Rowe Price Global Technology (PRGTX)
Expenses: 0.9%
Minimum Initial Investment: $2,500
While tech stocks have been plenty volatile in 2017, they’ve also been market leaders. This trend looks to continue 2017, which would favor funds such as T. Rowe Price Global Technology (MUTF:PRGTX) through the remainder of the year.
Other than its status as a leading tech sector fund, PRGTX has the advantage of holding the best tech stocks from all over the globe and international stocks have generally held an edge over U.S. stocks in 2017.
This go-anywhere ability allows PRGTX management to hold a range of blockbuster tech stocks, such as top holdings Alphabet Inc (NASDAQ:GOOGL), Electronic Arts Inc. (NASDAQ:EA), Intuit Inc. (NASDAQ:INTU) and Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM).
Best Sector Mutual Funds: Vanguard Health Care Fund (VGHCX)
Expenses: 0.37%
Minimum Initial Investment: $3,000
Healthcare sector funds have the distinction of offering defensive qualities while maintaining market leadership. They’re being driven by a constant flow of baby boomers hitting retirement age, and along with that, requiring increasingly more out of the sector — from treatments to insurance to care.
This makes the Vanguard Health Care Fund (MUTF:VGHCX) one of the best sector mutual funds to hold now.
Finding top performers for the rest of 2017 will likely entail holding funds that have upside potential in the final leg of a bull market but also limiting downside potential should things turn south.
VGHCX is a pharmaceutical-heavy collection of stocks that weights that particular industry at 45%, with double-digit holdings in biotech, healthcare equipment and managed healthcare stocks as well. At the moment, Bristol-Myers Squibb Co (NYSE:BMY), Allergan plc (NYSE:AGN), and UnitedHealth Group Inc (NYSE:UNH) are among the fund’s top holdings.
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities, although some of his client accounts hold VGHCX. Under no circumstances does this information represent a recommendation to buy or sell securities.
