Wages Increase at Best Pace in 9 Years: 5 Fund Picks – November 8, 2018

In October, wage gains exceeded 3% for the first time since the Great Recession. Moreover, job additions widely exceeded expectations, indicating that the economy continues to remain robust late into the expansion. The spurt in job gains came after a disappointing September, during which fierce storms impeded job gains. However, job additions for August were revised significantly upward.

Additionally, the unemployment rate remained near the 49-year low. Job gains were led by healthcare, manufacturing and transportation and warehousing. Professional and business services have contributed the largest number of jobs over the past year. Also, other sectors like construction, leisure and hospitality, and mining witnessed strong job gains. In this context, investing in mutual funds that have significant exposure to these sectors is considered a strong investment choice.

Annual Wage Growth Best Since Recession

Average hourly earnings rose by 0.2% or 5 cents to $27.30 in October, in line with the consensus estimate. Over the year, it advanced 3.1% or 83 cents, increasing more than 3% for the first time since the mid of 2009.

Though job additions for October widely exceeded expectations, the unemployment rate remained flat at 3.7%, the lowest since December 1969. The U6 unemployment rate, that includes people forced into part-time work and people only sporadically looking for jobs, moved down from 7.5% to 7.4%.

Additionally, the number of employed individuals increased to a record level of 156.6 million. The employment-population ratio increased 0.2% to 60.6%, its highest level since December 2008. Also, the labor force participation rate increased by 0.2% to 62.9%.

Sectors That Experienced Job Gains

The economy added 250,000 jobs in October, significantly higher than the consensus estimate of 193,000. Over the last 12 months, the economy has added 211,000 jobs per month on average. These gains have come despite indications from several quarters that the economy is near full employment.

At the forefront of job gains were healthcare, manufacturing, construction and transportation and warehousing, which added 36,000, 32,000, 30,000 and 25,000 jobs, respectively.

Professional and business services added 35,000 jobs. Notably, the industry has added 516,000 jobs over the past year, the highest among all those covered by the report from the Bureau of Labor Statistics. 

Buy These 5 Sectoral Mutual Funds

Here we have selected five mutual funds that have significant exposure to sectors that saw strong job additions in October. All these funds have a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Further, these funds have encouraging one-year annualizedreturns and minimum initial investment within $5000. Also, these funds have 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 Health Care Services Portfolio (FSHCX Free Report) 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.

The fund has one-year annualized returns of 27.5% and an expense ratio of 0.76% compared with the category average of 1.39%. FSHCX has a Zacks Mutual Fund Rank #1.

Fidelity Select Transportation (FSRFX Free Report) seeks capital growth. FSRFX invests a large chunk of its assets in securities of companies involved in design, manufacture and sale of transportation equipment and provide transportation services. The non-diversified fund invests in both U.S. and non-U.S. companies.

The fund has one-year annualized returns of 6.6% and an expense ratio of 0.80% compared with the category average of 1.29%. FSRFX has a Zacks Mutual Fund Rank #1.

Fidelity Select Leisure Fund (FDLSX Free Report) seeks capital appreciation. FDLSX normally invests a huge portion of its assets in common stocks of companies largely involved in the design, production and distribution of services in the leisure industries. The fund invests in both U.S. and non-U.S. companies.

The fund has one-year annualized returns of 1.8% and an expense ratio of 0.77% compared with the category average of 1.43%. FDLSX has a Zacks Mutual Fund Rank #1.

T. Rowe Price Financial Services (PRISX Free Report) 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 to select securities.

The fund has one-year annualized returns of 0.2% and an expense ratio of 0.85% compared with the category average of 1.46%. PRISX has a Zacks Mutual Fund Rank #2.

Invesco Technology Fund (ITYAX Free Report) invests the majority of its assets in equity securities of companies involved in technology-based industries. The fund primarily focuses on investing in common stocks of companies that provide tech services.

The fund has one-year annualized returns of 7.6% and an expense ratio of 1.27% compared with the category average of 1.38%. ITYAX has a Zacks Mutual Fund Rank #1.

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