Unemployment Rate Remains At 17-Year Low: 5 Fund Picks

Following a strong show in November with an increase in job additions and a low jobless rate, the sentiment remains positive over U.S. job data. Job additions remained high last month, recovering from workplace disturbances induced by hurricanes Harvey and Irma, which hit several states including Texas and Florida.

Steady gains in employment pushed workers’ pay higher, with average hourly wages increasing.A better-than-expected jobs’ report indicates a rosier economy and secures chances of a rate hike post Fed’s two-day policy meeting next week.

Sectors like professional and business services, manufacturing, health care and construction witnessed strong job gains. In this context, investing in mutual funds that have significant exposure to these sectors is considered a strong investment choice. But before that, let’s take a peek into the data.

Unemployment Rate Hits Record Low

Domestic non-farm payrolls advanced by 228,000 in November, significantly higher than the consensus estimate of 199,000, per the U.S. Bureau of Labor Statistics. Additionally, the unemployment rate remained unchanged at 4.1% in November, its lowest in 17 years. Moreover, the total number of unemployed persons is down by 799,000 or 0.5%, so far this year. 

Additionally, average hourly earnings rose by 5 cents or 0.2% to $26.55 in November, after falling by 0.1% in the preceding month. Over the year, it rose 2.5%, which was better than October’s increase of 2.3%. Along with higher wages, the average workweek for all employees also rose from 34.4 hours in October to 34.5 hours in November.

Sectors That Experienced Job Gains

Employment in professional and business service sectors increased 46,000, becoming the biggest contributor to last month’s job creations. The sector has added around 548,000 jobs over the last one year. Also, the manufacturing sector added around 31,000 jobs in November and advanced by 189,000 since November 2016.

Employment in the healthcare increased by 30,000 last month and its average monthly gain is 24,000 so far this year. The broader Health Care Select Sector SPDR (XLV) is up 19.1% year to date. Additionally, the construction sector created around 23,000 jobs last month and increased by 132,000 in the last 12 months.

Buy These 5 Sectoral Mutual Funds

Here, we have selected mutual funds that have significant exposure to sectors that saw strong job additions in April. All these funds have a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Further, these funds have encouraging year-to-date (YTD) returns and minimum initial investment within $5000. Also, these funds have low expense ratios.

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.

Fidelity Select Software & IT Services Portfolio FSCSX invests the majority of its assets in companies whose primary operations are related to software or information-based services. FSCSX primarily focuses on acquiring common stocks of both domestic and foreign companies. The fund uses fundamental analysis to select companies for investment purposes.

The fund has YTD returns of 38.1% and an expense ratio of 0.75% compared with the category average of 1.46%. FSCSX has a Zacks Mutual Fund Rank #1.

Prudential Jennison Financial Services A PFSAX seeks capital growth for the long run. PFSAX invests a heavy portion of its assets in equity securities of asset management companies, securities/brokerage firms, mortgage banking companies, banks, insurance companies, industrial finance companies and leasing companies.

The fund has YTD returns of 22.3% and an expense ratio of 1.42% compared with the category average of 1.60%. PFSAXhas a Zacks Mutual Fund Rank #2.

Fidelity Select Industrial Equipment Portfolio FSCGX invests a large portion of its assets in securities of companies principally engaged in the manufacture, distribution, or service of products and equipment for the industrial sector. FSCGX seeks appreciation of capital and invests in both domestic and foreign companies.

The fund has YTD returns of 17.2% and an expense ratio of 0.83% compared with the category average of 1.31%. FSCGX has a Zacks Mutual Fund Rank #2.

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-cap companies.

The fund has YTD returns of 27.7% and an expense ratio of 0.77% compared with the category average of 1.41%. PRHSXhas a Zacks Mutual Fund Rank #2.

Fidelity Select Transportation FSRFX seeks capital growth. FSRFX invests a large part of its assets in securities of companies involved in design, manufacture and sale of transportation equipment as well as providing transportation services. The non-diversified fund invests in both U.S. and non-U.S. companies.

The fund has YTD returns of 20% and an expense ratio of 0.82%, while the category average of 1.31%. FSRFX has a Zacks Mutual Fund Rank #1.

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