Service Activity Solid Despite Coronavirus Scare: 3 Fund Picks

Per the latest report from the Institute of Supply Management (ISM) on Mar 4, its service index came in at 57.3% in February to hit a one-year high. The metric also surpassed the consensus estimate of 54.9%. It is important to note that service activity in America remained strong in the month despite the coronavirus rampage, which has not only roiled stock markets across the globe but also forced the Federal Reserve to go ahead with an emergency rate cut.

Further, service-oriented firms like restaurants, hospitals and grocers reported growth in the month and boosted the overall service activity in the country.

A reading above 50% indicates that the non-manufacturing sector economy is generally expanding. Gains were broad based and occurred in 16 out of the total 18 industries that were surveyed. Under such circumstances, investing in mutual funds having significant exposure to services-related companies may prove prudent.

Service Activity Hits a 1-Year High

The service side of America’s economy surged to its highest in the past 12 months. As a matter of fact, service-oriented businesses remained strong in October, improving for 121 consecutive months.

Furthermore, the Non-Manufacturing Business Activity Index surged to 57.8% in the month of December, recording growth for 127 months on the trot. Also, the Employment Index grew to 55.6%, increasing for 72 consecutive months. Moreover, ISM's Non-Manufacturing New Orders Index rose to 63.1%, increasing for the 127th consecutive month in December.

Anthony Nieves, chair of The Institute for Supply Management stated that, “The past relationship between the NMI and the overall economy indicates that the NMI for February (57.3 percent) corresponds to a 3-percent increase in real gross domestic product (GDP) on an annualized basis.”

3 Best Choices

We have thus selected 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).

T. Rowe Price Financial Services Fund PRISX seeks both capital growth and current income. The majority of its assets are invested in financial services sector companies. It may also purchase securities of companies involved in providing financial software. The fund uses fundamental bottom-up analysis in order to select securities.

This Zacks sector - Finance product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

PRISX carries a Zacks Mutual Fund Rank #1 and has an annual expense ratio of 0.87%, which is below the category average of 1.42%. The fund has three and five-year returns of 6.2% and 7.7%, respectively.

Fidelity Select Health Care Services Portfolio FSHCX fund invests a large chunk of its assets in companies that either own or are involved in operating hospital and nursing homes, and are related to the healthcare services sector. FSHCX seeks appreciation of capital. The fund invests in securities of both U.S. and non-U.S. companies.

This Zacks sector - Health product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSHCX sports a Zacks Mutual Fund Rank #2 and has an annual expense ratio of 0.76%, which is below the category average of 1.24%. The fund has three and five-year returns of 10.9% and 8.9%, respectively.

Fidelity Select Leisure Portfolio FDLSX fund invests the bulk of its assets in securities of companies engaged in the design, production or distribution of goods or services in the leisure and recreation industries. The fund seeks growth of capital and invests both in U.S. and non-U.S. companies.

This Zacks sector -Other product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FDLSX has an annual expense ratio of 0.76%, which is below the category average of 1.27%. The fund has three and five-year returns of 9.9% and 7.3%, respectively.

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