Tag Archives: economy

U.S. Factory Activity Rebounds: 3 Mutual Fund Picks

Manufacturing in the U.S. expanded for the first time in six months in March, fueled by a surge in new orders. The outlook for manufacturing looks encouraging, thanks to a tempering strength of the dollar and a recent rise in oil prices. Industrial production in the U.S. had been under intense pressure for quite some time after a stronger dollar increasing prices of export-oriented goods compared to those priced in other currencies, which eventually weighed on sales. A continuous decline in oil prices also had a negative impact on the energy sector. Energy companies had to trim spending on big-ticket factory goods including drilling equipment. But, as these headwinds are no longer strong enough, The Goldman Sachs Group, Inc. (NYSE: GS ) believes that the manufacturing recession in the U.S. may be over. Regional surveys on factory activities in Philadelphia, New York, Richmond, Kansas City and Chicago also showed marked progress in March. Record factory orders data in January too showed a release from the slump. Banking on this buoyancy, it will be prudent to invest in funds that are exposed to the industrial sector. These funds not only boast strong fundamentals but also provide stellar returns over a long investment horizon. Before we handpick some good funds, let’s take a look at the latest data: Manufacturing Outlook Improves The Institute of Supply Management said that its manufacturing index increased to 51.8% in March from 49.5% in February, indicating growth in manufacturing for the first time since Aug. 2015. Any reading above 50 is a positive indicator to customers’ orders and factory production. Twelve out of 18 industries surveyed by the index posted growth. Additionally, new orders were strongest since 2014, while a measure of production activity reached a 10-month high. The ISM’s New Orders Index rose to 58.3% in March compared with 51.5% reported for February, which showed growth in new orders for the third successive month. The ISM’s Production Index also went up to 55.3% in March from 52.8% in February, indicating growth in production last month for the third straight month. Bradley Holcomb, chairman of the ISM factory survey, said that these readings showed that manufacturing is “moving in the right direction” and there is “every reason to be confident” about the manufacturing sector in the next few months. He added that customer inventories are low and exports are improving. Export orders in March rose to 52% from 46.5% in February, the highest reading since Dec. 2014. Regional Data Looks Solid According to Morgan Stanley (NYSE: MS ), on an ISM-weighted basis, the average of the Philadelphia Fed, Empire State, Richmond Fed and Kansas City Fed manufacturing surveys rose to 51.5 in March from 47 in February. Separately, manufacturing activity in the Philadelphia area turned positive in March for the first time in seven months, while factory activity in the New York region expanded for the first time since last July. Meanwhile, manufacturing activity in the Chicago area rebounded last month, another sign that manufacturing is starting to recover from difficult times. The Chicago PMI gained 6 points to 53.6 in March banking on an uptick in production and employment. 3 Mutual Funds to Ride the Manufacturing Wave Economic activity at U.S. manufacturing companies grew in March for the first time since last summer as indicated by the ISM manufacturing index. The economy was able to shake off the adverse effects of a stronger dollar and slump in oil prices. While a stronger dollar had made export-oriented goods expensive, lower oil prices hindered growth in energy sectors. Based on encouraging readings on factory activity, it seems that manufacturing is on resurgence. Harm Bandholz, chief U.S. economist at UniCredit Bank AG, said that “the rebound in the sentiment data avoids a self-fulfilling negative spiral” and it means “manufacturing will be less of a drag on the economy.” Add to this factory orders’ advance of 1.6% in January, its strongest increase since last June and you know why the manufacturing collapse is now over. In this scenario, it will be wise to invest in mutual funds that have significant holdings in the industrial sector. Here we have selected three industrial mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy), have given positive 3-year and 5-year annualized returns, offer minimum initial investment within $5000, carry a low expense ratio and possess no-sales load. Fidelity Select Defense & Aerospace Portfolio (MUTF: FSDAX ) invests the majority of its assets in securities of companies involved in the manufacture and sale of products or services related to the defense or aerospace industries. FSDAX has 96.97% of its holdings in the Industrials sector. FSDAX’s 3-year and 5-year annualized returns are both at 11.7%. FSDAX carries a Zacks Mutual Fund Rank #1 and the annual expense ratio of 0.79% is lower than the category average of 1.33%. Fidelity Select Industrial Equipment Portfolio (MUTF: FSCGX ) invests a major portion of its assets in securities of companies principally engaged in the manufacture or service of products for the industrial sector. FSCGX has 95.94% of its holdings in the Industrials sector. FSCGX’s 3-year and 5-year annualized returns are 9.1% and 7.7%, respectively. FSCGX carries a Zacks Mutual Fund Rank #1 and the annual expense ratio of 0.77% is lower than the category average of 1.33%. Fidelity Select Industrials (MUTF: FCYIX ) invests a large portion of its assets in securities of companies primarily involved in the development, distribution or sale of industrial products or equipment. FCYIX has 94.37% of its holdings in the Industrials sector. FCYIX’s 3-year and 5-year annualized returns are 10.1% and 9.5%, respectively. FCYIX carries a Zacks Mutual Fund Rank #2 and the annual expense ratio of 0.78% is lower than the category average of 1.33%. About Zacks Mutual Fund Rank By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past, but are also expected to outperform going forward. Pick the best mutual funds with the help of Zacks Rank. Original Post

ETFs To Gain Or Lose After Strong Jobs Report

Wall Street had a strong start to the second quarter courtesy of encouraging data released on April 1. In particular, a solid March job report injected further optimism into the economy, driving stocks higher. This is especially true as U.S. hiring continued its strong momentum with 215,000 jobs added last month following the revised 245,000 job additions in February. This is much above Reuters’ expectation of 205,000 (see: all the Large Cap ETFs here ). The majority of the additions were seen in retail, health care, and construction that more than offset the decline in the manufacturing and mining sectors. Notably, the economy has been creating over 200,000 jobs per month since 2014. Average hourly wages grew by 7 cents to $25.43 in March bringing the year-over-year increase to 2.3%. This is much better than the 2-cent decline in February but lower than the 2.6% year-over-year wage growth in December that marked the strongest improvement since 2009. However, the unemployment rate ticked up slightly to 5% from an eight-year low of 4.9%. Meanwhile, the labor force participation rate, which indicates the percentage of working-age people who are employed or looking for work, climbed to the highest level since March 2014 at 63%. The robust pace of job creation suggests that the U.S. is one of the healthiest economies in the world that will be able to withstand global uncertainty. However, the data failed to alter the cautious expectations for a rates hike. Given this, a few ETFs will severely impact by the solid jobs data while some are expected to gain in the weeks ahead. Below, we have highlighted some of these that are especially volatile post jobs data: ETFs to Gain PowerShares DB USD Bull ETF (NYSEARCA: UUP ) A healthy job market and the resultant improving economy are expected to pull in more capital into the country and lead to appreciation of the U.S. dollar. UUP is the prime beneficiary of the rising dollar as it offers exposure against a basket of six world currencies – euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. This is done by tracking the Deutsche Bank Long US Dollar Index Futures Index Excess Return plus the interest income from the fund’s holdings of the U.S. Treasury securities. In terms of holdings, UUP allocates nearly 57.6% in euro and 25.5% collectively in Japanese yen and British pound. The fund has so far managed an asset base of $818.6 million while sees an average daily volume of around 1.7 million shares. It charges 80 bps in total fees and expenses, and lost 0.04% on the day following the jobs report. The fund has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook (read: ETF Winners & Losers Following Yellen Comments ). SPDR Homebuilders ETF (NYSEARCA: XHB ) Solid labor market fundamentals along with affordable mortgage rates will continue to fuel growth in a recovering homebuilding sector, creating a buying opportunity in housing-related stocks and ETFs. The most popular choice in the homebuilding space, XHB, follows the S&P Homebuilders Select Industry Index. In total, the fund holds about 37 securities in its basket with none accounting for more than 5.73% share. The product focuses on mid-cap securities with 65% share, followed by 27% in small caps. The fund has amassed about $1.5 billion in its asset base and trades in heavy volume of about 3.6 million shares. Expense ratio comes in at 0.35%. XHB added 0.7% on the day and has a Zacks ETF Rank of 2 with a High risk outlook. SPDR S&P Retail ETF (NYSEARCA: XRT ) Retail will also benefit from accelerating job growth and modest wage growth that will lead to increased spending power. XRT tracks the S&P Retail Select Industry Index, holding 100 securities in its basket. It is widely spread across each component as none of these holds more than 1.47% of total assets. Small-cap stocks dominate about three-fifths of the portfolio while the rest have been split between the other two market-cap levels. XRT is the most popular and actively traded ETF in the retail space with AUM of about $605 million and average daily volume of around 4.4 million shares. It charges 35 bps in annual fees and lost 0.1% on the day. The product has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a Medium risk outlook. ETFs to Lose SPDR Gold Trust ETF (NYSEARCA: GLD ) An upbeat jobs report dampened the appeal for gold as it reflects strength in the economy and boosted investor risk sentiment. As a result, the strongest Q1 rally of the yellow metal in nearly three decades could come to a halt and the product tracking this bullion like GLD will lose. The fund tracks the price of gold bullion measured in U.S. dollars, and kept in London under the custody of HSBC Bank USA. It is the ultra-popular gold ETF with AUM of $31.9 billion and average daily volume of around 8.7 million shares a day. Expense ratio came in at 0.40%. The fund was down 0.6% on the day and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook. iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) The U.S. government bonds would be badly hit as strong hiring led to speculation that the economy can withstand a tighter monetary policy. This would lead to higher Treasury yields and lower bond prices. In particular, bonds and ETFs tracking the long end of the yield curve would be impacted the most. The ultra-popular long-term Treasury ETF – TLT – tracks the Barclays Capital U.S. 20+ Year Treasury Bond Index and has AUM of $8.1 billion. Expense ratio came in at 0.15%. Holding 32 securities in its basket, the fund focuses on the top credit rating bonds with average maturity of 26.61 years and effective duration of 17.77 years. The fund is up just 0.05% following the jobs report and has a Zacks ETF Rank of 2 with a High risk outlook. Link to the original post on Zacks.com