The U.S. manufacturing sector has delivered a strong performance so far this year, despite persistent inflationary pressures and geopolitical uncertainties. Manufacturing activity has continued its gradual recovery, supported by solid demand for factory-made products.
The sector has now expanded for seven consecutive months and is expected to maintain its positive momentum in the near term.
Given the situation, investors may want to consider funds like Fidelity Select Defense & Aerospace Portfolio FSDAX and Fidelity Select Automotive Portfolio FSAVX that are likely to benefit in the near term.
Manufacturing Activity Gains Momentum
The ISM Manufacturing PMI climbed to 55.6 in July, rising 2.3% from June’s reading of 53.3 and exceeding economists’ expectations of 54. The latest figure marked the highest level since May 2022, when the index reached 55.9.
July also marked the seventh consecutive month of expansion for the manufacturing sector following a 10-month downturn. A reading above 50 indicates growth in the sector.
A significant boost came from stronger production activity. The production index increased to 58.5 in July, gaining 6.3% from the previous month and reaching its highest level since November 2021.
Manufacturing employment also showed improvement, with the employment index moving above the 50 threshold for the first time after 33 months of contraction. Meanwhile, the new orders index rose to 56.7 from 56 in June, marking its seventh straight month of growth.
Despite the positive trend, the sector continues to face challenges. President Donald Trump’s tariffs have put pressure on several industries, while rising costs of aluminum, steel and energy products due to tensions in the Middle East have added to manufacturers’ expenses.
However, easing oil prices in recent weeks and stronger demand for manufactured goods have provided support to the sector. The Federal Reserve’s decision to keep interest rates unchanged is also expected to be favorable for manufacturing companies in the near term.
2 Best Choices
We have, thus, selected two mutual funds with significant exposure to the manufacturing sector, each carrying a Zacks Mutual Fund Rank #2 (Buy), and 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 Defense & Aerospace Portfolio fund invests a huge portion of its assets in the securities of companies involved primarily in the research, manufacturing and sale of products and services in 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 30% and 18.4% over the past three and five years, respectively. The fund has an annual expense ratio of 0.63%, which is lower than the category average.
To see how this fund performed compared to its category, and other #1 (Strong Buy) and 2 Ranked Mutual Funds, please click here.
Fidelity Select Automotive Portfolio fund aims for capital appreciation. FSAVX invests most of its assets in common stocks of companies engaged in manufacturing automobiles, trucks, specialty vehicles, parts, tires and related services.
Fidelity Select Automotive Portfolio fund has a history of positive total returns for over 10 years. FSAVX has returned 6.5% and 1.5% over the past three and five years, respectively. Fidelity Select Automotive Portfolio fund has an expense ratio of 0.78%, which is lower than the category average of 0.92%.
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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