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Industrial Output Up For Five Straight Months: 3 Fund Picks

Strong gains in mining output and a rebound in manufacturing production led industrial output to register its fifth straight month of gains in June. This growth streak has helped industrial output register strong gains in the first half of this year.

Given these upbeat trends, investing in mutual funds that have significant exposure to all the major industry groups could be one of the most suitable investment options at present. Some of the encouraging data that has raised hopes for the industrials, mining and manufacturing sectors for the near future deserve closer examination.

Industrial Output Posts Up 1.3% in 1H17

Industrial production rose 2% in the last 12 months. The sector registered a rise of 1.3% in the first six months of 2017 and advanced by 0.4% in June, better than the increase of 0.1% in May. The rise in industrial production last month also exceeded the consensus expectation of a 0.3% increase.

Additionally, capacity utilization advanced from 76.4% to 76.6% in June. It also rose 1% in the last 12 months. Further, indexes some of the key market groups also advanced last month. All the key industry groups’ data was also encouraging.

Mining and Manufacturing Boost Output

Mining output grew 1.6% last month, after surging 1.9% in May. This was 9.9% higher than the year-ago figure. Strong increase in coal mining, drilling, oil and gas extraction, and other related support activities contributed to production growth in the mining sector. It also registered strong growth in the first half of this year after climbing 14.1% in the first quarter and maintained a similar pace of gains even in the second quarter of 2017.

Additionally, manufacturing output, which accounts for around 75% of total industrial production and 12% of the domestic economy, rose 0.2% in June after declining in the prior month. This metric also rose 1.2% year over year. While the durables index increased 1%, the nondurables index remained unchanged. Gains in production of durable items fueled the pickup in manufacturing output.

Market Groups Data Upbeat

In major market groups, consumer goods production was flat, but consumer durables advanced 1% last month. This is a result of a substantial increase in the indexes for furniture, carpeting, appliances and automotive products.  Business equipment, which represents about 10% of total industrial output, also advanced 0.1%.

Additionally, the nonindustrial supplies market group registered an output growth of 0.1%. Further, materials output moved 0.7% higher following a 1% increase in energy materials production. Also, both durable and nondurable materials advanced 0.5%.

Buy These 3 Industrials Mutual Funds

Recent data related to the broader industrials sector clearly indicate that growth has picked up on the back of gains in major industry groups likemining and manufacturing. This is borne out by the fact that mutual funds related to the major industry groups also registered strong returns. According to Morningstar, the industrials and precious metals mutual fund posted year-to-date returns of 10.7% and 6.1%, respectively.

Against this encouraging backdrop, we have selected three mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy). Moreover, these funds have impressive year-to-date (YTD) returns. They also have minimum initial investment within $5000 and low expense ratios.

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.

Fidelity Select Industrials FCYIX seeks capital growth by investing mainly in equity securities. FCYIX invests the bulk of its assets in securities of companies involved in manufacture, development, sales and distribution of industrial products and equipment. The fund is non-diversified and invests in both U.S. and non-U.S. companies.

FCYIX has YTD returns of 6.6%, and an expense ratio of 0.77% as compared to the category average of 1.20%. It invests 88.22% of its assets in one of the key sensitive sectors — industrials.

Vanguard Precious Metals and Mining VGPMX seeks growth of capital over the long term. The fund invests the majority of its assets in stocks of both domestic and foreign companies whose primary operations pertain to precious metals including gold. A maximum of 20% of its assets may be utilized to hold gold, silver or other precious metals in the form of bullion or coins.

The fund has YTD returns of 9.8%, and an expense ratio of 0.43% as compared to the category average of 1.36%. VGPMX invests 97.90% of its assets in one of the key cyclical sectors — basic materials.

Fidelity Select Chemicals Portfolio FSCHX invests heavily in securities of companies, which are involved in the research, development, manufacture and marketing of products or services connected to the chemical process industries. It is a non-diversified fund that seeks growth of capital. FSCHX invests in both U.S. and non-U.S. companies.

The fund has YTD returns of 16.6%, and an expense ratio of 0.79% as compared to the category average of 1.36%. FSCHX invests 96.56% of its assets in one of the key cyclical sectors — basic materials.

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