Manufacturing Output Up for 5th Straight Month: 5 Fund Picks – November 19, 2018

Manufacturing output advanced for the fifth straight month in October, per data from the Federal Reserve. Despite a fall in vehicle production, manufacturing production rose and offset the fall in the utilities and mining output. This led to the headline industrial production number gaining over October.

Given these positive trends, the addition of mutual funds that have significant exposure to the industrials sector could be a prudent decision. Now, we will take a glance at the encouraging data that raised hopes for these sectors for the coming months.

Manufacturing Gains Offset Declines in Autos, Utilities, Mining

Industrial production increased by 0.1% in October, primarily because the increase in manufacturing output offset declines across several categories. Manufacturing output increased by 0.3% last month, outweighing the declines in mining and utilities. The indexes for these sectors declined 0.3% and 0.5%, respectively.

Additionally, the increase in manufacturing came despite a drastic fall in production of motor vehicles by 2.8% after gaining 1.3% in September. However, manufacturing still registered a robust increase of 0.5% after excluding the impact of motor vehicles and parts. This metric had gained 0.2% in September.

The primary catalyst for these gains was a solid increased in output of business equipment, which increased 0.8%. Also, capacity utilization for manufacturing sector, which measures the extent to which companies are utilizing their resources, increased from 76.1 to 76.2 in October, its biggest settlement since July 2015. (Read More: Manufacturing Output Rises for Fifth Straight Month: 5 Picks)

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 under administration of more than $6.8 trillion, with around $2.1 trillion mutual fund assets under management as of Mar 31, 2018.

Fidelity has 27 million individual customers 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 primary reason for choosing mutual funds from Fidelity is the fund family’s focus on index-based funds or sectoral funds, which that have significant exposure to the manufacturing and related sectors.

2 Fidelity Fund Picks

Following strong manufacturing activity in August, we have selected two 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 two 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 Industrials Fund (FCYIX Free Report) 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 1.29%. Moreover, FCYIX requires a minimal initial investment of $2,500. The fund has three-year annualized returns of 8.6%.

This Sector-Other product, as of the last filing, allocates the fund mainly in the Industrial Cyclical sector.  As of the last filing, United Technologies Corp, Honeywell International Inc and Union Pacific Corp were the top holdings for FCYIX, constituting 6.32%, 5.64% and 5.24%, respectively.

FCYIX’s performance, as of the last filing, when compared to funds in its category was in the top 13% over the past three years and in the 13% over the past five years.

The fund sports a Zacks Mutual Fund Rank #1. Tobias W. Welo is the fund manager of FCYIX since 2007. FCYIX’s dividend yield is 0.57%.

Fidelity Select Defense & Aerospace Portfolio (FSDAX Free Report) 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.

FSDAX carries an expense ratio of 0.76% compared with the category average of 1.29%. Moreover, FSDAX requires a minimal initial investment of $2,500. The fund has three-year annualized returns of 17.5%.

This Sector-Other product, as of the last filing, allocates the fund mainly in Industrial Cyclical and Technology sectors.  As of the last filing, Boeing Co, Northrop Grumman Corp and United Technologies Corp were the top holdings for FSDAX, constituting 14.93%, 10.69% and 10.15%, respectively.

FSDAX’s performance, as of the last filing, when compared to funds in its category was in the top 2% over the past three years and in the 1% over the past five years.

FSDAX carries a Zacks Mutual Fund Rank #2. Further, Jonathan Siegmann is the fund manager of FSDAX since 2015. FSDAX’s dividend yield is 0.43%.

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