Per the latest report from the Institute of Supply Management (ISM), manufacturing activity in the United States increased considerably in May compared with April, reaching a two-month high. Out of the 18 key manufacturing industries, steady growth in 16 industries gave a boost to manufacturing activity last month.
Following this development, the manufacturing sector looks quite attractive and is expected to expand further. Thus, investing in mutual funds have significant exposure to companies from manufacturing and related sectors seems prudent.
ISM Manufacturing Scales Two-Month High
The ISM reported that its manufacturing index increased from 57.3% in April to 58.7% in May. Moreover, the index topped the consensus estimate of 58.2%. Additionally, the U.S. manufacturing index posted expansion for 21 straight months, while the overall economy continued to grow for the 109th straight month.
The U.S. manufacturing sector continued to expand in May following an increase in new orders, production and employment. Adding to continued expansion, most of the industries offered a positive outlook for the business environment and the economy in general. The manufacturing index continued to increase in May, after rebounding in April.
New Orders, Production & Employment Expand
New order count rose from 61.2% in April to 63.7% in May. Also, 15 out of 18 industries experienced expansion. Talking about new orders, Timothy R. Fiore, CPSM, C.P.M., chair of ISM said, “faster rate of new orders expansion reversed a two-month expansion slowing,” which in turn helped the index move “above 60 percent for the 13th straight month.”
The ISM Production index came in at 61.5% in May, registering growth of 4.3% from April’s reading. Fiore said that after registering slower expansion for four consecutive months, it contributed “positively to PMI expansion in May.” Additionally, the ISM Employment index advanced from 54.2% in April to 56.3% in May, witnessing growth for 20 straight months.
Why Fidelity Mutual Funds?
Fidelity Investments is considered one of the leaders in the financial services industry with presence in eight countries of North America, Europe, Asia and Australia. The company had total assets of $6.8 trillion, with around $2.4 trillion under management as of Dec 31, 2017.
Fidelity has individual customers of 27 million and manages a large number of mutual funds across a wide range of categories, including both domestic as well as foreign funds, and equity and fixed income funds.
The main reason for choosing mutual funds from Fidelity is because the fund family focuses on dealing in index-based funds or sectoral funds, which that have significant exposure to the manufacturing and related sectors.
3 Fidelity Fund Picks
Following strong manufacturing activity in May, we have selected three Fidelity mutual funds that boast a ZacksMutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three-year annualized 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.
Fidelity Funds to Buy on Solid Manufacturing Activity: Fidelity Select Transportation Portfolio (FSRFX)
Fidelity Select Transportation Portfolio (MUTF:FSRFX) seeks appreciation of capital. FSRFX invests a large chunk of its assets in securities of companies involved in design, manufacture, and sale of transportation equipment. The non-diversified fund invests in both U.S. and non-U.S. companies.
FSRFX carries an expense ratio of 0.80% compared with the category average of 1.04%. Moreover, FSRFX requires a minimal initial investment of $2,500. The fund has three-year annualized returns of 9.4%.
The fund has a Zacks Mutual Fund Rank #2. Matthew Moulis is the fund manager of FSRFX since 2012. As of the last filing, Union Pacific is the top holding for FSRFX.
Fidelity Funds to Buy on Solid Manufacturing Activity: Fidelity Select Industrials Portfolio (FCYIX)
Fidelity Select Industrials Portfolio (MUTF:FCYIX) seeks capital appreciation. FCYIX normally invests a chunk of its assets in common stocks of companies principally engaged in the research, development, manufacture, distribution, supply, or sale of materials, equipment, products, or services related to cyclical industries.
FCYIX carries an expense ratio of 0.77% compared with the category average of 1.04%. Moreover, FCYIX requires a minimal initial investment of $2,500. The fund has three-year annualized returns of 9.3%.
The fund has a Zacks Mutual Fund Rank #1. Tobias W. Welo is the fund manager of FCYIX since 2007. As of the last filing, United Technologies is the top holding for FCYIX.
Fidelity Funds to Buy on Solid Manufacturing Activity: Fidelity Select Automotive Portfolio (FSAVX)
Fidelity Select Automotive Portfolio (MUTF:FSAVX) seeks appreciation of capital. 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. FSAVX invests in both U.S. and non-U.S. companies.
FSAVX carries an expense ratio of 0.96% compared with the category average of 1.17%. Moreover, FSAVX requires a minimal initial investment of $2,500. The fund has three-year annualized returns of 2.6%.
The fund has a Zacks Mutual Fund Rank #2. Elliot Mattingly is the fund manager of FSAVX since 2017. As of the last filing, General Motors is the top holding for FSAVX.
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