U.S. Industrial Production Continues to Expand: 4 Fund Picks
On Sep 15, the Federal Reserve reported that industrial production increased 0.4% in August, in line with the consensus estimate but lower than July’s downwardly revised 0.8% increase. Manufacturing output continued to grow despite supply side constrains and Hurricane Ida forcing factories to close in the latter half of the month.
Factory activities accelerated last month due to growth in orders and shipments of goods. In fact, demand is being fueled by businesses trying to replenish stocks by narrowing down inventory shortage faced so far this year. Increase in industrial production in August now puts the parameter 5.9% above the same period last year but production is still 0.3% below the pre-pandemic level (February 2020) on a yearly basis. Additionally, capacity utilization edged up slightly to 76.4 (rising 0.2 percentage points) in August, in line with the consensus estimate.
Hurricane Ida Holds Back Industrial Output
Hurricane Ida took a bite out of the gain in industrial production last month by 0.3 percentage point (estimated). Ida devastated the country’s offshore energy production and caused a blackout in Louisiana in the last week of August. It led to closure of several petrochemical, plastic resins, and petrochemical refineries. Mining production fell 0.6%. On the contrary, unseasonably rise in temperature boosted demand for air conditioning and led utilities’ output to rise 3.3%.
Production Grows Despite Supply Constraints
Manufacturing output for consumer goods increased modestly while the index for consumer energy products moved up 2.5%. Manufacturing output was 1% above its pre-pandemic level despite the supply side constraints and Hurricane Ida hold backs. There was significant rise in durable goods production, with furniture and related products witnessing the largest gain in output. Significant rise in the output of food, beverage, and tobacco products, paper, and coal products outweighed losses in chemical output.
The raw material crunch continues to plague the automobile industry. The surge in Delta variant-led cases in Southeast Asia worsened the chip shortage scenario as congestions at ports in China continued. However, manufactures remain positive that growth in the space will remain strong, supported by low inventories. Mitigation of labor shortage and supply issues will lead to a stronger rebound in production.
4 Funds to Buy
Industrial production remains strong despite hitting several roadblocks especially on the supply side. The space is poised to grow and witness a strong rebound. Investors should purchase funds with significant exposure in production companies to get high returns.
We have highlighted four mutual funds, carrying a Zacks Mutual Fund Rank #1 (Strong Buy) and 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 fund invests the majority of its assets in common stocks of companies engaged in the manufacturing 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. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
FSAVX has returned 27.7% and 20.6% over the past three and five years, respectively.
Fidelity Select Utilities Portfolio FSUTX aims for capital appreciation. This non-diversified fund invests the majority of its assets in common stocks of companies primarily engaged in the utilities industry and companies generating most of their revenues from utility operations.
This Zacks Sector – Utilities has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
FSUTX has returned 9.5% and 11.5% in the past three and five-year period, respectively.
Fidelity Select Materials Portfolio FSDPX aims for capital appreciation. This non-diversified fund invests the majority of assets in common stocks of companies principally engaged in the manufacture, mining, processing, or distribution of raw materials and intermediate goods.
This Sector – Energy product has a history of positive total returns for over 10 years. To see how this fund performed compared to its category and other #1 and 2 Ranked Mutual Funds, please click here.
FSDPX has three and five-year returns of 9.4% and 10.4%, respectively.
Fidelity Select Chemicals Portfolio FSCHX fund seeks capital appreciation. The fund normally invests at least 80% 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. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
FSCHX has returned 5.9% and 10.5% over the three and five-year period, respectively.
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