3 Consumer Cyclical Mutual Funds to Grab in December – December 1, 2020

As we move into the last month of this rocky year, investors may gear up to invest in some of the beaten-down sectors. Even as the coronavirus pandemic-led slump pushed major indexes to their record lows, the S&P 500, the Dow and the Nasdaq were back on track in November, registering more than a 10% gain. The Dow crossed the 30,000 point-mark last month and optimism about a coronavirus vaccine breakthrough cheered investors to hope for a faster economic recovery and growth.

Expectations of a COVID-19 vaccine discovery have given a new lease of life to the economy, helping beaten-down economically-sensitive cyclical stocks to gain traction.And since the mRNA-based technology used by Pfizer and Moderna claims to be about 95% effective, traders widely expect the pharmaceutical giants to begin emergency distribution of their respective vaccine candidates.

With the availability of the vaccine, the beaten-down travel and tourism stocks will also be able to make a comeback. Possibility of progress in the coronavirus vaccine and decline in cases brightens the prospects of travel, which in turn will drive demand for oil. Energy, especially oil, has been one of the biggest losers of this year. However, with brighter prospects, energy shares have now jumped more than 30% in November. Along with that, apparel stocks are recovering in the holiday season since vaccine hopes and return to normal lifestyle will increase consumer outlays.

However, traders are unsure about the performance of the stock market in the presidential transition phase. The Trump administration may blacklist some major China companies, CNOOC, an oil and gas giant, and SMIC, a chip manufacturer, among many others. This can dampen the U.S.-China trade relations, leading stocks to another roller-coaster ride. However, the vaccine breakthrough should have a subsequently positive impact on the economy and keep the northward trend on. Along with that, the market hopes that the economy will recover faster as the former Fed Chair Janet Yellen is expected to become the next Treasury Secretary. Yellen is expected to take unprecedented steps to provide support to the pandemic-hit economy.

Let’s also not forget the Santa Claus Rally. Like each year, despite the pandemic slump, the stock market may witness a sustained increase that occurs in the last week of December through the first two trading days in January. The rally has several explanations like tax considerations, a general feeling of optimism and happiness across Wall Street as well as the investing of holiday bonuses.  This holiday tradition will certainly give beaten-down cyclical stocks a boost.

3 Funds to Buy

Given the positive outlook for December, we have shortlisted three consumer cyclical funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy) and are poised to gain significantly. Moreover, these funds have encouraging year-to-date (YTD) returns. Additionally, the minimum initial investment is within $5000. We expect these funds to outperform peers in the future.

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 Automotive Portfolio (FSAVX Free Report) fund aims for capital appreciation. This non-diversified fund invests majority of assets in common stocks of companies involved in the manufacture, marketing or sale of automobiles, trucks, specialty vehicles, parts, tires and related services.

This Sector – Other product has a history of positive total returns for over 10 years. Specifically, the fund has returned 12.6% and 10.2% over the past three and five years, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

FSAVX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.00%, which is below the category average of 1.22%

Fidelity Select Retailing Portfolio (FSRPX Free Report) fund aims for capital appreciation. This non-diversified fund invests a large portion of its assets in the common stock of companies engaged in merchandising finished goods and services, primarily to individual consumers.

This Sector – Other product has a history of positive total returns for over 10 years. Specifically, the fund has returned 20.9% and nearly 16% over the past three and five-year period, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

FSRPX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.74%, which is below the category average of 1.22%.

Fidelity Select Leisure Portfolio (FDLSX Free Report) fund aims for capital appreciation. This non-diversified fund invests majority of assets in common stocks of companies, principally engaged in the design, production, or distribution of goods or services in the leisure industries.

This Sector – Other product has a history of positive total returns for over 10 years. Specifically, the fund has returned 6.9% and 8.7% over the past three and five years, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

FDLSX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.76%, which is below the category average of 1.22%.

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