The U.S. manufacturing sector has been trying hard to make a recovery after a prolonged period of weakness, and recent data suggest the sector is gaining momentum. Manufacturing activity accelerated in March to its highest level in more than three years, marking the third consecutive month of growth and signaling a strong rebound this year.
Even with ongoing pricing pressures, rising demand has continued to support the sector’s recovery. Against this improving backdrop, investors may want to consider funds like Fidelity Select Defense & Aerospace Portfolio FSDAX and Fidelity Select Automotive Portfolio FSAVX that are likely to benefit in the near term.
Manufacturing activity showed clear improvement, with the ISM Manufacturing PMI climbing to 52.7 in March from 52.4 in February, surpassing expectations of 52.5. This marks the strongest reading since August 2022, and the third straight month the index has remained above 50 — a level that indicates expansion.
The March growth was driven in part by longer supplier delivery times, which are often associated with strong demand and a healthy economy, though they can also signal slower shipments. The Deliveries Index increased to 58.9 from 55.1 in the previous month. Still, sustained demand has played a key role in lifting the sector.
Meanwhile, the Federal Reserve kept interest rates unchanged in its current range of 3.5% to 3.75% at its March FOMC meeting. Inflation rose during the month as oil prices surged due to the Iran conflict, but a recently announced two-week ceasefire is expected to help ease pressure. Investors are now anticipating that the Fed could implement at least one 25-basis-point rate cut later this year if inflation continues to cool.
We have, thus, selected two mutual funds with significant exposure to the manufacturing sector, each carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (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.
The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Fidelity Select Defense & Aerospace Portfolio fundinvests a huge portion of its assets in the securities of companies involved primarily in the research, manufacturing, and sale of products and services in the defense or aerospace industries. FSDAX seeks capital growth by investing in both U.S. and non-U.S. companies.
