Inflation Unexpectedly Cools: 5 Funds to Gain – March 13, 2019

Muted near-term inflation in the U.S. suggests that the Fed will continue to be patient on further rate hikes. With the Fed expected to hold off from additional rate hikes, real estates, utilities and energy players stand to gain.

U.S. Inflation Supports Fed’s Frozen Rates

According to the Bureau of Labor Statistics, the Consumer Price Index (CPI) rose 0.2% on a seasonally adjusted basis in February after remaining unchanged for three months. The core consumer price index, which doesn’t include food and energy, also rose 0.1% from January. However, both inflation numbers fell short of the Fed’s 2% objective.

Since the core CPI, especially, is below the Fed’s official target, it is under no pressure to raise rates. According to the Fed chairman Jerome Powell, inflation in the United States is stable, low and isn’t much responsive to the ease in the economy.

In addition, the central bank is also taking into consideration the rising risks from slowing global growth. All these factors largely support the Fed’s wait-and-see stance for any rate hikes this year.

Real Estate, Utilities and Energy Sectors Could Gain

Given the scenario, it would be ideal to invest in mutual funds that bank on common stocks of companies that are engaged in operations in the real estate, utilities and energy sectors. It’s because these companies stand to reap significant gains from the Fed’s no-rate-hike stand and supportive inflation data.

These companies could benefit considerably from frozen interest rates since it would ensure that the borrowing costs for these businesses remain constant in the near term. This would not only help them expand but also keep additional costs at bay.

The products and services offered by these companies are independent of economic setbacks or stock market volatility as well. The steady revenue earned by these companies largely comes from their stable business models and almost complete authority in the areas they operate in.

Our Choices

We have selected a couple of mutual funds from the utilities, energy and real estate sectors that you could consider adding to your portfolio. These funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three-year returns. Additionally, the minimum initial investment 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).

Real Estate

Fidelity Real Estate Investment Portfolio (FRESX Free Report) aims for above-average income and long-term capital appreciation. The fund invests the majority of its net assets in securities of companies that are engaged in operations in the real estate industry and related investments. FRESX is a non-diversified fund and may invest in both U.S. and foreign companies.

This Sector – Real Estate 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.

FRESXhas a Zacks Rank #1 and an annual expense ratio of 0.75%, which is below the category average of 1.23%. The fund has three-year returns of 8.1%.The fund has no minimum initial investment.

Utilities

Fidelity Telecom and Utilities (FIUIX Free Report) aims for high total returns through a blend of current income and capital growth. The fund invests at least 80% of its assets in securities of telecommunication services and utility companies. FIUIX mostly invests in common stocks of companies. The non-diversified fund may invest in U.S. and non-U.S. companies alike.

This Sector – Utilities 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.

FIUIXhas a Zacks Rank #1 and an annual expense ratio of 0.54%, which is below the category average of 1.17%. The fund has three-year return of 11.5%.The minimum initial investment for FIUIX is $2500.

Franklin Utilities A1(FKUTX Free Report) aims for capital growth and current income by investing at least 80% of its net assets in securities of public utilities companies. These companies either provide water, natural gas, electricity and communication services to the public or offer services to public utilities companies. FKUTX mostly invests in equity securities, which primarily comprise common stocks.

This Sector – Utilities 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.

FKUTXhas a Zacks Rank #2 and an annual expense ratio of 0.74%, which is below the category average of 1.17%. The fund has three-year return of 11.2%.The minimum initial investment for FKUTXis $1000.

Energy

T. Rowe Price New Era (PRNEX Free Report) seeks long-term capital appreciation by investing the majority of its assets in common stocks of natural resource companies. The non-diversified fund may also invest in other growth companies that the fund’s managers believe have great potential for earnings growth.

This Sector – Energy 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.

PRNEXhas a Zacks Rank #2 and an annual expense ratio of 0.69%, which is below the category average of 1.39%. The fund has three-year returns of 9.3%.The minimum initial investment for PRNEXis $2500.

Vanguard Energy Investor (VGENX Free Report) aims to provide capital growth by investing the majority of its net assets in common stocks of companies that are engaged in operations in the energy sector. These operations may range from exploration, production and transfer of energy or energy fuels, pollution control, energy conservation and research etc.

This Sector – Energy 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.

VGENXhas a Zacks Rank #2 and an annual expense ratio of 0.38%, which is below the category average of 1.38%. The fund has three-year returns of 10.1%.The minimum initial investment for VGENXis $3000.

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