Service sector

4 mutual funds to choose from as the U.S. service sector hits an all-time high

The US economy is gradually recovering from the crisis caused by the coronavirus pandemic. Strong job creation is stimulating the economy and supporting the manufacturing and service sectors. In fact, growth in the services sector in the United States was stronger than expected in October. According to the Institute for Supply Management (ISM) November 3 report, its services PMI rose to 66.7 in October from 61.9 the previous month. ISM’s services PMI has now risen for the 17th consecutive month.

Business activity in the service sector rose 7.5 percentage points to 69.8%, while new orders rose 6.2 percentage points to 69.7% in October. Although supply chain disruptions and shortages of labor and materials are limiting capacity and impacting general business conditions, improving labor markets are maintaining momentum.

Job record a headwind

On Nov. 5, the U.S. Bureau of Labor Statistics reported that businesses added 531,000 in October, beating the consensus estimate of 442,000. The report also said the September figure was revised up to 312,000. and that job creations in August fell from 366,000 to 483,000. Stronger than expected job creations in October helped the unemployment rate to fall to 4.6%.

In total, the private sector created 604,000 new jobs last month, while there was a significant drop in government jobs. Additionally, average hourly earnings rose 0.4% in October and are now 4.9% higher over the past 12 months.

The report argues that the biggest labor shortage in years is still preventing the US economy from recovering and adds to the biggest surge in inflation in three decades. However, there were strong job creations in leisure and hospitality, professional and business services, manufacturing, transportation and warehousing.

Rapid vaccination and reopening efforts are improving consumer confidence as they prepare for the holiday season. The good health of the job market also allows them to indulge in spending despite the rise in inflation. In such a scenario, investing in mutual funds with significant exposure to service-related companies may be prudent.

4 funds to buy

So we’ve selected four service-linked mutual funds with Zacks Mutual Fund Rankings #1 (Strong Buy) or #2 (Buy) that are poised to take advantage of these factors. In addition, these funds have encouraging returns over three and five years. Also, the minimum initial investment is less than $5,000.

We expect these funds to outperform their peers going forward. Remember, the purpose of the Zacks Mutual Fund Rankings is to guide investors in identifying potential winners and losers. Unlike most fund rating systems, Zacks Mutual Fund Rankings focus not only on past performance, but also on the likely future success of the fund.

The question here is: why should investors consider mutual funds? Reducing transaction costs and diversifying the portfolio without multiple commission fees associated with stock purchases are the primary reason for investing money in mutual funds (read more: Mutual Funds : advantages, disadvantages and how they make money for investors).

Fidelity Select Leisure Portfolio The FDLSX fund invests the majority of its assets in securities of companies engaged in the design, production or distribution of goods or services in the recreation and entertainment industries. The fund seeks capital growth and invests in both US and non-US companies.

This Sector – Other product has been on a positive total return trajectory for more than 10 years. Specifically, the fund has returned 16.6% and 17.1% over the past three and five years, respectively. To see how this fund performed against its category and other #1 and #2 ranked mutual funds, please click here.

FDLSX has a #1 Zacks mutual fund ranking and an annual expense ratio of 0.77%, which is below the category average of 0.79%.

Fidelity Select Retail Portfolio The FSRPX fund aims for capital appreciation. This non-diversified fund invests a large portion of its assets in common stocks of companies engaged in the marketing of finished products and services, primarily to individual consumers.

This Sector – Other product has a history of positive total returns for more than 10 years. Specifically, FSRPX has returned 18.4% and 21.6% over the past three and five years, respectively. To see how this fund performed against its category and other mutual funds ranked 1 and 2, please click here.

FSRPX has a #1 Zacks mutual fund ranking and an annual expense ratio of 0.73%, which is below the category average of 0.79%.

Fidelity Select Financial Services Portfolio The FIDSX fund seeks capital appreciation. This non-diversified fund invests the majority of its assets in common stocks of companies engaged in providing financial services to consumers and industry.

This Sector – Financials product has had a track record of positive total returns for more than 10 years. Specifically, FIDSX has a three- and five-year return of 14.4% and 15.8%, respectively. To see how this fund performed against its category and other #1 and #2 ranked mutual funds, please click here.

FIDSX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.77% versus the category average of 1.08%.

Fidelity Select Consumer Discretionary Portfolio The FSCPX fund seeks capital appreciation. This broad-based fund invests the majority of its assets in common stocks of companies that manufacture and distribute consumer discretionary goods and services. FSCPX invests in domestic and foreign stocks.

This Zacks Sector-Other product has a history of positive total returns for over 10 years. Specifically, the fund has three- and five-year returns of 16.7% and 18%, respectively. To see how this fund performed in its category, and other mutual funds ranked 1 and 2, please click here.

FSCPX has a Zacks mutual fund rank of No. 2 and an annual expense ratio of 0.73%, below the category average of 0.79%.

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