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3 Funds to Buy as Industrial Production Picks Up in October

Zacks Equity Research
·4 min read

According to the Federal Reserve’s report on Nov 17, industrial production recovered much of its 16.5% decline from February to April due to the initial lockdown in the wake of the coronavirus outbreak. While majority of the industries in America reported an uptick in production last month, mining output declined due to depressed energy prices.

Given such positive economic data, investing in mutual funds that have significant exposure to the manufacturing and industrial space seems prudent.

U.S. Industrial ProductionShows Significant Rebound

Per the Federal Reserve’s report, industrial production rose 1.1% in October, surpassing the consensus estimate of 1% growth and rebounding from September’s 0.4% revised decline. Manufacturing output increased 1% in October versus 0.1% gain in the month before. Also, output of utilities rose 3.9% after declining 5.2% in September.

Gains in production were widespread in the reported month, extending beyond consumer goods to business supplies, equipment, construction supplies and materials as investment in business recovered from pandemic slumps. Production of business equipment rose 0.6% in October, while indexes for defense and space equipment, construction supplies, business supplies, and materials each advanced 1% and higher in October.

Other Factors Indicating Growth

The aforementioned report also states that capacity utilization for the industrial sector increased to 72.8% in October from September’s revised 72%. Capacity utilization in the manufacturing space rose to 71.7% in October, showing a jump of 11.6 percentage points from its steep decline in April this year. However, it is still 6.5 percentage points below its long-run average.

Top 3 Picks

Given the positive reports from the industrial production space, we have highlighted three mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) that are poised to gain. Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.

We expect these funds to outperform 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 Automotive Portfolio FSAVX fund aims for capital appreciation. This non-diversified fund invests majority of its 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 Chemicals Portfolio FSCHX fund aims for capital appreciation. This non-diversified fund normally invests majority of its assets in common stocks of companies principally engaged in the research, development, manufacture, or marketing of products or services related to the chemical process industries.

This Sector - Other product has a history of positive total returns for over 10 years. Specifically, the fund has returned 5.1% over the five-year benchmark. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

FSCHX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.78%, which is below the category average of 1.34%.

Fidelity Select Industrials Portfolio FCYIX fund aims for capital appreciation. This non-diversified fund normally invests a large portion of its assets in the common stock of companies principally engaged in the research, development, manufacture, distribution, supply, or sale of materials, equipment, products, or services related to cyclical industries.

This Sector - Other product has a history of positive total returns for over 10 years. Specifically, the fund has returned 3.1% and 7.2% over the past three and five-year, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

FCYIX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.76%, which is below the category average of 1.04%.

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