Play 4 Industrial Mutual Funds As Output Hits 20-Month High

Industrial production witnessed strong gain last month, in fact, the biggest in the last 20 months. We can expect this increase to help the broader manufacturing sector stabilize in the second half of this year. The record rise in industrial output came as a huge relief for the manufacturing and mining sector that suffered for the last 18 months.

Moreover, industrial production disappointed in the first half of 2016 as a stronger dollar weighed on overall export, and low oil and commodity prices crippled the mining sector. However, in recent times, a weakening dollar and a steady rise in domestic auto demand supported the manufacturing sector.

Given these upbeat trends, the addition of mutual funds that have significant exposure to the industrials sector could be one of the most suitable investment options. Now, we will take a glance at some of the encouraging data that raised hopes for the industrials sector in the coming months.

Industrial Output Posts Best Gain in 20 Months

Industrial production in July saw its biggest gain in nearly two years. The Board of Governors of the Federal Reserve System reported that industrial production increased 0.7% in July, posting its highest percentage increase since Nov 2014. The rise in industrial production in July was higher than the consensus expectation of a 0.3% increase.

Also, capacity utilization advanced from 75.4% to 75.9% last month, more than the consensus expectations of 75.6%. Further, the indexes in some of the key market groups also rose last month. Additionally, most of the industry groups’ data was also encouraging.

Market Groups Data Upbeat

Stable growth in both consumer durables and non-durables led the consumer goods output to increase by 0.6% in July. The business equipment index has also advanced 0.6% following gains in industrials and transit equipment.

Further, business and construction supplies rose 0.4% last month, registering its first percentage rise since April 2016. Gains in durable and energy materials also pushed the overall materials output, which rose 1%.

Encouraging Manufacturing Production Data

In the last six months (February to July), manufacturing output posted its best percentage rise of an increase of 0.5%. Moreover, durables and non-durable output also registered similar rises.

In durables, motor vehicles, wood products and other miscellaneous products increased more than 1%. In non-durables, coal and petroleum products, and rubber and plastics goods combined saw a gain of above 0.8%. Mining indexes also climbed 0.7%.

Buy These 4 Industrials Mutual Funds

As discussed above, recent data related to the industrials sector clearly indicate favorable growth. This is borne out by the fact that the Industrial Select Sector SPDR ETF (NYSE:XLI) gained 6.1% in the last three months, turning out to be one of the best performing sectors among the major S&P 500 sectors.

Additionally, mutual funds related to this sector also registered strong returns. According to Morningstar, the industrials mutual fund posted 3-month, year-to-date and 1 year returns of 6.1%, 9.1% and 5.5%, respectively.

Against this encouraging backdrop, we have selected four industrial mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have impressive year-to-date (YTD) return. They also have minimum initial investment within $5000 and low expense ratios.

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.

Fidelity Select Industrials FCYIX seeks capital growth by investing mainly in equity securities. FCYIX invests the bulk portion of its assets in securities of companies involved in manufacture, development, sales and distribution of industrial products and equipments. The fund invests in both U.S. and non-U.S. companies. The fund has YTD return of 8.5%, and an expense ratio of 0.76% as compared to the category average of 1.23%. FCYIX has a Zacks Mutual Fund Rank #1.

Fidelity Select Industrial Equipment Portfolio FSCGX invests the lion’s share of its assets in the companies which are engaged in the industrial sector. FSCGX seeks appreciation of capital. The fund invests in both domestic and foreign companies. The fund has YTD return of 9.4%, and an expense ratio of 0.82% as compared to the category average of 1.23%. FSCGX has a Zacks Mutual Fund Rank #1.

Fidelity Select Transportation FSRFX seeks capital growth. FSRFXinvests the majority of its assets in securities of companies involved in design, manufacture and sale of transportation equipments and provide transportation services. The non-diversified fund invests in both U.S. and non-U.S. companies. The fund has YTD return of 7.8%, and an expense ratio of 0.80% as compared to the category average of 1.23%. FSRFX has a Zacks Mutual Fund Rank #1.

Fidelity Advisor Industrials A FCLAX invests more than 80% of its assets in securities of companies involved in manufacture, sales and supply of industrial equipments.FCLAX seeks capital appreciation by investing mainly in common stocks.The fund has YTD return of 8.5%, and an expense ratio of 1.06% as compared to the category average of 1.23%. FSRFX has a Zacks Mutual Fund Rank #2.

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