Investors have shown immense positivity over the past three months as Wall Street’s decent performance highlights an economic rebound from the COVID-19 slumps. Major indexes have notched all-time highs on building optimism on drop in coronavirus cases, progress in vaccination and upbeat economic data.
The U.S. economy grew at an annualized rate of 6.4% in first-quarter 2021, surpassing the consensus estimate of 6.1%. It marks the second-fastest pace for growth since the second quarter of 2003, while in fourth-quarter 2020, GDP accelerated 4.3%. On the consumer’s side, U.S. consumer confidence hit a one-year high in March and has risen for the second consecutive month in April. The Conference Board reported that the index of consumer confidence climbed to 121.7 in April, showing an 11.7% jump from the previous month’s revised figure of 109.
Additionally, for the week ending Mar 24, initial claims dropped to the lowest level since the coronavirus outbreak, falling to 553,000. The decline in initial claims shows that the labor market is recovering as businesses restart hiring employees with the easing of pandemic-induced restrictions.
Investment Themes Aligned With Economic Reopening
Investors had gravitated toward thematic investing during the pandemic, specifically due to technological transformation owing to lockdown measures. While some of those themes will continue to remain active investment strategies in the rest of 2021, themes aligned to economic reopening are also gaining importance. The top themes to play a critical role are travel & leisure, energy, financials and industrials.
The vaccination-led economic reopening along with substantial stimulus from the government has paved the way for the U.S. economy to make significant recovery in the second quarter. Though Americans are retaining some of the stay-at-home habits, there is an increased need to step out for more than just getting groceries and essentials. With restrictions being lifted, restaurants, pubs, sports arena are reopening and customers are enjoying hanging out with friends and family in outdoor dining spaces.
Sectors like banks, industrials, energy, consumer discretionary will emerge winners due to their high growth potential. These sectors tend to move along with the economy’s growth and can generate higher returns for investors during this time. Businesses will continue to rehire employees laid off during the coronavirus outbreak and this will fuel consumer spending that will in turn help the economy recover. Along with that, the Federal Reserve will hold interest rates near zero through 2023 despite the risk of inflation.
4 Top Fund Picks
Given the current scenario, we have shortlisted four mutual funds that are poised to grow. They carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) and are poised to grow. In addition, the minimum initial investment for these funds is within $5,000.
We expect these funds to outperform peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify the potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on the fund’s past performance but also on its likely future success.
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 the reasons for parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages and How They Make Investors Money).
Fidelity Select Leisure Portfolio (FDLSX – Free Report) fund aims at capital appreciation. This non-diversified fund normally invests majority of assets in the common stocks of companies that are mostly engaged in the design, production or distribution of goods or services in the leisure industries.
This Zacks Sector – Other product has a history of positive total returns for more than 10 years. Specifically, FDLSX has returned 15.7% and 15.4% over the past three and five years, respectively. To see how this fund performed compared to 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 0.80%.
Fidelity Select Financial Services Portfolio (FIDSX – Free Report) fund aims for capital appreciation. This non-diversified fund invests majority of assets in the common stock of companies engaged in providing financial services to consumers and the industry.
This Sector – Finance product has a history of positive total returns for over 10 years. Specifically, FIDSX has three and five-year return of 10.7% and 15.2%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
FIDSX has an annual expense ratio of 0.77% versus the category average of 1.07%.
Fidelity Select Chemicals Portfolio (FSCHX – Free Report) fund aims for capital appreciation. The non-diversified fund normally invests majority of assets in common stocks of companies principally engaged in the research, development, manufacture, or marketing of products or services related to the chemical process industries.
This Sector – Other product has a history of positive total returns for over 10 years. Specifically, FSCHX has three and five-year return of 5.4% and 10.9%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
FSCHX has an annual expense ratio of 0.78%, which is below the category average of 1.10%.
Fidelity Select Materials Portfolio (FSDPX – Free Report) aims for capital appreciation. This non-diversified fund invests majority of assets in common stocks of companies principally engaged in the manufacture, mining, processing, or distribution of raw materials and intermediate goods.
This Sector – Energy product has a history of positive total returns for over 10 years. Specifically, FSDPX has three and five-year return of 7% and 10.3%, respectively. To see how this fund performed compared to its category and other #1 and 2 Ranked Mutual Funds, please click here.
FSDPX has an annual expense ratio of 0.80%, which is below the category average of 1.10%.
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