4 Mutual Funds to Ride on Robust Economic Growth

The U.S. equity market is lately growing by leaps and bounds. This stupendous run has primarily been fueled by President Trump’s business-friendly approach, a strong domestic economy, reduced tax rates, robust manufacturing activity and improvements in the labor market.

Moreover, despite job additions being low in March, the overall employment situation remains strong. In fact, the slowdown in the pace of hiring gives credence to the view that the economy is near full employment. Additionally, earnings growth continued to inch up and unemployment rate remained flat at a 17-year low even as wage gains were encouraging.

In such a scenario, when the economy is at full throttle, adding mutual funds from sectors like construction, healthcare as well as manufacturing seems prudent.

A Sturdy Economy

The Trump administration remains focused on improving the ease of doing business as evident from the recent tax cuts. The historic overhaul of the tax structure to reduce tax liabilities from 35% to 21% has not only boosted corporate earnings but has also powered an increase in business investments.

Economic activity in the manufacturing sector expanded in March and the overall economy grew for the 107th consecutive month. U.S. manufacturing activity continued its robust performance in March as the PMI measured by ISM touched 59.3%. This indicates strong growth in manufacturing for the 19th consecutive month, led by continued expansion in new orders, production activity, employment and inventories, with suppliers continuing to struggle delivering to demand. Of the 18 manufacturing industries, 17 reported growth in March.

Coming to the non-manufacturing sector, NMI (Non-Manufacturing Index) was at 58.8% in March, recording the 98th consecutive month of expansion. The Prices Index and the Employment Index gained 0.5% and 1.6% to hit 61.5% and 56.6%, respectively. As many as 15 non-manufacturing industries reported growth.

Healthy Wage Gains Amid Flat Jobless Rate

The economy added only 103,000 jobs in March, significantly lower than the consensus estimate of 189,000. However, job additions for February were revised upward from 313,000 to 326,000. Also, the economy experienced job additions at an average pace of 202,000 per month during the first quarter. This was significantly faster than the average gains registered over the last two years.

The employment index registered growth of 57.3% in March, indicating employment growth for the 18th consecutive month. Of the 18 manufacturing industries, 12 reported growth in employment. The increase was led by the fact that companies are gearing up to hire more skilled workers and indirect personnel.

At the forefront of jobs gains were healthcare and construction. Each of these sectors added 22,000 jobs. Job additions in mining amounted to 9,000. However, leading the pack was the professional and business services sector which added 63,000 jobs. Over the year, the sector has added 502,000 jobs.

Meanwhile, average hourly earnings increased by 8 cents to $26.82. The metric registered a 2.7% year-over-year increase, marginally higher than the 2.6% pace witnessed in February. Moreover, the unemployment rate remained flat at 4.1% for the sixth consecutive month. Unseasonal weather prevented unemployment from falling further, though it remains at a 17-year low.

4 Fund Choices

Given such circumstances, we have highlighted four mutual funds that are poised to gain significantly from a robust economy. We have included funds from healthcare, manufacturing and construction industries. These funds also carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.

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).

T. Rowe Price Health Sciences PRHSX  invests a major portion of its net assets in common stocks of companies involved in research, development, production, or distribution of products or services related to health care and life sciences. PRHSX may invest in companies of any size, however, the majority of its assets is invested in large and mid-capitalization companies.

This Sector – Health product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 6.4% and 19.6%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

PRHSX has a Zacks Rank #2 and an annual expense ratio of 0.77%, which is below the category average of 1.30%.

John Hancock II Real Estate Securities 1 JIREX seeks appreciation of capital and income over the long term. JIREX invests primarily in equity securities of companies engaged in operations related to the real estate sector, which includes REITs. The fund invests in securities including common stock, preferred stocks and convertible securities. It may invest a maximum of 10% of its assets in securities of companies domiciled outside the U.S. territory.

This Sector – Real Estate product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 0.7% and 6%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

JIREX has a Zacks Rank #1 and an annual expense ratio of 0.79%, which is below the category average of 1.23%.

Fidelity Select Industrials Fund FCYIX seeks capital appreciation. FCYIX normally invests at least 80% of its assets in common stocks 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 9.9% over the three-year and 13.1% over the five-year benchmarks. 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 Rank #1 and an annual expense ratio of 0.77%, which is below the category average of 1.29%.

Putnam Global Industrial A PGIAX seeks long-term capital appreciation. The fund normally invests at least 80% of its assets in common stocks of both large and mid-sized companies principally operating in the industrial products, services or equipment space.

This Sector - Other product has a history of positive total returns for over 10 years. Specifically, the fund has returned 13.5% over the three-year and 16% over the five-year benchmarks. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

PGIAX has a Zacks Rank #1 and an annual expense ratio of 1.28%, which is below the category average of 1.29%.

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