The U.S. manufacturing sector is finally rebounding, logging its first expansion in over two years. Persistent price pressures in recent years weakened demand, negatively impacting overall manufacturing activity. However, a significant decline in inflation has helped ease these pressures, boosting demand.
Given the improving outlook, now could be a great time to invest in funds like Fidelity Select Retailing Portfolio FSRPX, Fidelity Select Industrials Portfolio FCYIX and Fidelity Select Defense & Aerospace Portfolio FSDAX, which are likely to benefit in the near term.
Manufacturing Activity Gathers Steam
A survey from the Institute of Supply Management (ISM) released on Monday showed that its manufacturing PMI surged to 50.9 in January, reaching its highest level since September 2022. This figure significantly outpaced December’s reading of 49.2 and exceeded analysts’ expectations of 49.8.
Moreover, this marks the first time since October 2022 that the PMI has climbed above the critical 50 threshold, which signals expansion in the sector. The steady month-over-month increase indicates a strengthening manufacturing industry, which is a positive development for the broader economy.
The Federal Reserve raised interest rates by 525 basis points since March 2022 in an aggressive bid to combat sky-high inflation. Rate hikes, coupled with existing price pressures, significantly dampened demand, making the manufacturing sector one of the hardest hit.
However, the central bank initiated its rate-cutting cycle in September 2024. Since then, the Fed has reduced interest rates by a total of 1 percentage point across three consecutive cuts, bringing its benchmark policy rate down to the current 4.25-4.5% range. This has significantly lowered borrowing costs.
Despite this, concerns arose last week after Trump announced plans to impose 25% tariffs on imports from Canada and Mexico, reigniting fears of a trade war. While these tariffs could have negatively affected the manufacturing sector, they have been temporarily put on hold following initial negotiations with Canada and Mexico. As a result, markets rebounded on Monday after experiencing a sharp selloff earlier in the session.
3 Best Choices
We have, thus, selected three mutual funds with significant exposure to the manufacturing sector, each carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), that are poised to gain from such factors. Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.
The question here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Fidelity Select Retailing Portfolio invests most of its net assets in securities of companies that are engaged in finished goods, merchandise and services mostly for individual consumers. FSRPX invests in issues of both foreign and domestic companies.
Fidelity Select Retailing Portfolio fund has a history of positive total returns for over 10 years. FSRPX has returned 3.4% and 13.5% over the past three and five years, respectively, and has a Zacks Mutual Fund Rank #1. Fidelity Select Retailing Portfolio fund has an annual expense ratio of 0.64%, which is lower than the category average of 0.99%.
To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
Fidelity Select Industrials Portfolio fund 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.
Fidelity Select Industrials Portfoliofund has a history of positive total returns for over 10 years. FCYIX has returned 10.8% and 12.2% over the past three and five years, respectively, and has a Zacks Mutual Fund Rank #2. Fidelity Select Industrials Portfolio fund and an annual expense ratio of 0.69%, which is lower than the category average of 0.86%.
To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
Fidelity Select Defense & Aerospace Portfolio invests a huge portion of its assets in the securities of companies involved primarily in the research, manufacturing, and sale of products and services, per the defense or aerospace industries. FSDAX seeks capital growth by investing in both U.S. and non-U.S. companies.
Fidelity Select Defense & Aerospace Portfolio fund has a history of positive total returns for over 10 years. FSDAX has returned 12.9% and 6.8% over the past three and five years, respectively, and has a Zacks Mutual Fund Rank #1. Fidelity Select Defense & Aerospace Portfolio fund and an annual expense ratio of 0.66%, which is lower than the category average of 0.86%.
To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
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