3 Funds to Ride Wall Street’s Best Quarter in 20 Years – July 2, 2020

U.S. financial markets have been extremely resilient in their returns over the past few days despite the stunning rise in new coronavirus cases in the country. Of course, the current scenario of global health crisis may induce uncertainty and volatility in the markets, but the rapid economic recovery displayed by stocks lately is quite remarkable and indicates the underlying strength of the securities.

In fact, one may consider the impressive performance of the three major U.S. indexes in the second-quarter 2020, which marked the best performance by the indexes in more than 20 years on Jun 30. This is why, mutual fund investors who wish to take advantage of this strong performance, may consider investing in a couple of funds that invest in companies included in these indexes.

Best Quarter for American Indexes in Decades

The three major U.S. indexes – the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite – ended second-quarter 2020 on an impressive note. The three indexes have clearly come a long way from their Mar 23 lows.

The Dow Jones added 17.8% in Q2 2020, which was the best quarter for the index since 1987. The broader S&P 500 increased about 20%, thus marking its best gain since 1998 and the tech-laden Nasdaq Composite rose nearly 31% in the quarter ended June 2020 for its sharpest quarterly gain since 1999.

Of course, many factors propelled the indexes to book such strong gains.

First, the reopening of economy across all 50 states from the end of April impacted consumer as well as business activity. This is evident in the reported retail sales in May. In May, retail sales jumped as much as 17.7% from April. Clothing and accessories stores had the biggest percentage gain at 188%, and sales of sports products, hobby, musical instruments, books and the like witnessed an 88.2% uptick.

May’s impressive rise in sales was mostly pushed by warm weather, optimism over economic recovery from the coronavirus-led rout and the excitement of consumers of being able to visit brick-and-mortar stores again, after spending months at home. Apart from these, an uptick in spending on motor vehicles and at restaurants and bars was also responsible for more than a little over half of the overall gain in sales.

Second, other economic data from the month of May are also encouraging. The index of pending home sales rose as much as 44.3% in May as compared to April, per the National Association of Realtors. May’s uptick came after two consecutive months of decline. In fact, the monthly rise was the largest since January 2001.

New job additions in May were impressive as well. Employment in the United States rose by 2.5 million while the jobless rate stooped to 13.3%, according to the Labor Department. May’s job gain was the biggest one-month gain in employment in U.S. history since at least 1939.

In addition, consumer confidence reported in June also induced optimism. The Conference Board’s Consumer Confidence Index improved to 98.1 in June from 85.9 in May.

Finally, the Federal Reserve and the government’s several monetary and fiscal measures also pushed indexes back on track.

Earlier in June, the central bank decided to keep its benchmark rates unchanged in its range of 0% to 0.25%. The rates are expected to stay at this level for the next two and a half years. The central bank had also said that it will continue to raise its bond holdings, targeting Treasury purchases at $80 billion a month and mortgage-backed securities at $40 billion.

The government’s several stimulus measures – from small business loans to stimulus checks for individuals and households – all these really helped the economy and upheld the benchmarks’ performance during the public health crisis.

3 Funds to Buy

We have, therefore, selected three mutual funds that invest in companies included in the three major American indexes. All of these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy). In addition, the minimum initial investment for these funds is within $5,000.

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).

Fidelity Select Semiconductors Portfolio (FSELX Free Report) aims for capital growth. The fund invests the majority of its assets in securities of companies that manufacture or market semiconductors and semiconductor equipment. The non-diversified fund invests in securities of both domestic and foreign issuers. NVIDIA and Intel are among the fund’s top holdings.

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

FSELX has an annual expense ratio of 0.72%, which is below the category average of 1.29%. It has returned 43.2% over the past year. The fund has no minimum initial investment.

Fidelity Balanced Fund (FBALX Free Report) aims for growth of income and capital which is consistent with reasonable risk. The fund invests the majority of its assets in stocks and other equity securities. It invests the rest of its assets in bonds and debt securities. Microsoft, Amazon and Apple are among the fund’s top holdings.

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

FBALX has an annual expense ratio of 0.53%, which is below the category average of 0.83%. It has returned 13% over the past year. The fund has no minimum initial investment.

BlackRock Advantage Large Cap Growth Fund Investor A Shares (BMCAX Free Report) aims for long-term capital growth. The fund invests the majority of its assets in securities of large-capitalization American companies.  The product considers those companies as large caps whose market capitalization at the time of purchase is equivalent to those included on the Russell 1000 Growth Index. Microsoft, Facebook, Alphabet and Apple are among the fund’s top holdings.

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

BMCAX has an annual expense ratio of 0.87%, which is below the category average of 1.05%. It has returned 22.3% over the past year. The fund has a minimum initial investment of $1000.

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