ISM Service Index Rebounds in October: 3 Fund Picks – November 8, 2019

Per the latest report from the Institute of Supply Management (ISM) on Nov 5, its service index came in at 54.7% in October, surpassing the consensus estimate of 53.6%. Further, the rise in the index follows a three-year low of 52.6% it had witnessed in the previous month.

Further, service-oriented firms such as financial institutions, healthcare providers and restaurants reported growth in the month and boosted the overall service activity in the country. The rise was supported by improving conditions on the trade war front.

A reading above 50% indicates that the non-manufacturing sector economy is generally expanding. Gains were broad-based and occurred in 13 out of the total 17 industries that were surveyed. Under such circumstances, investing in mutual funds having significant exposure to services-related companies may prove prudent.

Service Activity Burgeons in October

The service side of America’s economy grew at a faster pace than the manufacturing sector. As a matter of fact, service-oriented businesses remained strong in October, improving for 117 consecutive months.

Furthermore, the Non-Manufacturing Business Activity Index surged to 57% in the month of October, posting growth for 123 months on the trot. Also, the Employment Index grew to 53.7% in the month. Moreover, ISM’s Non-Manufacturing New Orders Index increased to 55.6% compared to the September reading of 53.7%. Meanwhile, new orders grew for the 123rd consecutive month in October.

3 Best Choices

We have thus selected three mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong 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.

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.

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).

T. Rowe Price Financial Services Fund (PRISX Free Report) seeks both capital growth and current income. The majority of its assets are invested in financial services sector companies. It may also purchase securities of companies involved in providing financial software. The fund uses fundamental bottom-up analysis in order to select securities.

This Zacks sector – Sector-Finance product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

PRISX has an annual expense ratio of 0.87%, which is below the category average of 1.43%. The fund has three and five-year returns of 13.3% and 9.2%, respectively.

Fidelity Select Leisure Portfolio (FDLSX Free Report) fund invests a bulk of its assets in securities of companies engaged in the design, production or distribution of goods or services in the leisure and recreation industries. The fund seeks growth of capital and invests both in U.S. and non-U.S. companies.

This Zacks sector – Sector-Other product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FDLSX has an annual expense ratio of 0.76%, which is below the category average of 1.26%. The fund has three and five-year returns of 15.3% and 10.8%, respectively.

Fidelity Select Health Care Services Portfolio (FSHCX Free Report) fund invests a large chunk of its assets in companies that either own or are involved in operating hospital and nursing homes, and are related to the healthcare services sector. FSHCX seeks appreciation of capital. The fund invests in securities of both U.S. and non-U.S. companies.

This Zacks sector – Sector-Health product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSHCX has an annual expense ratio of 0.76%, which is below the category average of 1.26%. The fund has three and five-year returns of 15.9% and 10.2%, respectively.

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