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4 Top-Performing Mutual Funds in October

In October, all three U.S. benchmarks posted their best percentage performance since February. Although, impact of hurricanes Harvey and Irma cast a pall over the month, benchmarks managed to maintain their winning streak. Strong third-quarter earnings and favourable economic data contributed to gains in October.

Banking on such positive vibes, the addition of mutual funds to your portfolio having strong exposure to U.S. companies could prove lucrative. Now, let us take a look at some of the encouraging factors that contributed to gains in these mutual funds in October.

Benchmarks Post Record Gains

For the month, the Dow, the S&P 500 and the Nasdaq increased 4.3%, 2.2% and 3.6%, respectively. While, the Dow and the S&P 500 posted their seventh straight month of gains, the Nasdaq registered its fourth straight monthly gain in 2017. Moreover, this also happens to be the longest streak of gains for the Dow since April 2012 and the S&P 500 since May 2013.

Also, major tech behemoths like Microsoft Corp. MSFT, Alphabet Inc. GOOGL, Amazon.com Inc. AMZN, Intel Corp. INTC, IBM IBM and Netflix NFLX have reported stunning quarterly earnings, which boosted the performance of the S&P 500 and tech-based index, Nasdaq.

Meanwhile, the House of Representatives passed a $4.1 trillion budget bill for 2018. Moreover, the House of Representatives cleared the budget blueprint with the majority of Republicans voting in favor of the move. Also, the release of the Federal Open Market Committee minutes clearly hinted at a rate hike in December. President Trump chose not to certify Iran’s compliance with a nuclear deal struck in 2015.

Economic Data In Focus

Economic data released during October was largely encouraging. The U.S. economy expanded at a solid 3% seasonally adjusted annual rate in the third quarter of 2017, according to Commerce Department data. The expansion came on the back of 3.1% growth in the second quarter. It also marks two consecutive quarters of 3% or more growth since mid-2014.

The sentiment remains positive over U.S. job data, despite a poor show in September with a decline in job additions for the first time in seven years. Job additions were low primarily because of workplace disturbances caused by hurricanes Harvey and Irma, which hit several states including Texas and Florida.

Domestic non-farm payrolls declined by 33,000 in September, the first such job loss since 2010. However, the tumult caused by the hurricanes did not leave an impact on the unemployment rate. According to the U.S. Bureau of Labor Statistics, the unemployment rate declined from 4.4% in August to 4.2% in September, the lowest since February 2001.

Moreover, the total number of unemployed persons fell by 331,000 to 6.8 million, its lowest level since December 2000. Additionally, average hourly earnings rose by 5 cents or 0.5% to $26.55, up 2.9% for the year. This was better than August’s increase of 2.7%.

Q3 Earnings Boost Sentiment

Strong earnings results had a positive impact on the Technology Select Sector SPDR (XLK) last month. Technology was the best performing sector in the S&P 500 cohort in October, with the biggest rise of 7.7% since July 2016. Impressive third-quarter 2017 earnings by tech heavyweights such as Microsoft, Alphabet, Amazon and Intel have been the highlight of this earnings season. Also, shares of IBM and Netflix posted better-than-expected third-qaurter earnings results.

Meanwhile, total revenues for the 272 S&P 500 members that reported results till Oct 27, are up 6.7% from the same period last year. This compares favorably with 5.5% top-line growth in the preceding quarter. (Read: All-Around Strength in Q3 Earnings Season)

Buy These 4 Top Performing Mutual Funds

Here, we have selected four mutual funds that have significant exposure to the U.S. stock markets. Moreover, these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy). 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.

These funds have encouraging returns for the month of October and year-to-date (YTD) period and minimum initial investment is within $5000. Also, each of these funds has a low expense ratio.

Fidelity Select Technology FSPTX normally invests a large portion of its assets in securities of companies principally engaged in offering and developing products, processes, or services that will provide or will benefit significantly from technological advances and improvements.

The fund has October and YTD returns of 7% and 50.8%, respectively, and an expense ratio of 0.76% as compared with the category average of 1.45%.

Putnam Global Technology Y PGTYX invests a major portion of its assets in securities of companies involved in operations related to the technology domain. PGTYX uses a blend strategy to invest in common stocks of companies.

The fund has October and YTD returns of 5.7% and 47.1%, respectively, and an expense ratio of 1.03% as compared with the category average of 1.45%.

JPMorgan Small Cap Growth PGSGX invests heavily in securities issued by small capitalization companies whose market capitalization is similar to that of Russell 2000 Growth Index stocks.

The fund has October and YTD returns of 2.4% and 33.8%, respectively, and an expense ratio of 1.24% as compared with the category average of 1.34%.

Fidelity Growth Discovery FDSVX invests in common stocks of those companies that are expected to offer above-average growth potential. It invests in both U.S. and non-U.S. companies.

The fund has October and YTD returns of 4.1% and 33.4%, respectively, and an expense ratio of 0.65% as compared with the category average of 1.22%.

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