Service Side of Economy Ends 2019 on a High: 3 Fund Picks

Per the latest report from the Institute of Supply Management (ISM) on Jan 7, its service index came in at 55% in December, surpassing the consensus estimate of 54.5%. The metric also surpassed its reading of 53.9% in November.

Further, service-oriented firms reported growth in the month and boosted the overall service activity in the country. The rise was supported by improving conditions on the trade war front, coupled with excellent holiday sales.

A reading above 50% indicates that the non-manufacturing sector economy is generally expanding. Gains were broad-based and occurred in 11 out of the total 17 industries that were surveyed. Under such circumstances, investing in mutual funds having significant exposure to services-related companies may prove prudent.

Service Activity Nudges Up in December

The service side of America’s economy grew at a faster pace than the manufacturing sector last month. As a matter of fact, service-oriented businesses remained strong in October, improving for 119 consecutive months.

Furthermore, the Non-Manufacturing Business Activity Index surged to 57.2% in the month of December, posting growth for 125 months on the trot. Also, the Employment Index grew to 55.2%, increasing for 70 consecutive months. Moreover, ISM's Non-Manufacturing New Orders Index increased to 54.9%, increasing for the 125th consecutive month in December.

Anthony Nieves, chair of The Institute for Supply Management stated that, “The respondents are positive about the potential resolution on tariffs; however, respondents continue to have difficulty with labor resources.”

3 Best Choices

We have thus selected three mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong 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.

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.

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 why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

T. Rowe Price Financial Services Fund PRISX seeks both capital growth and current income. The majority of its assets are invested in financial services sector companies. It may also purchase securities of companies involved in providing financial software. The fund uses fundamental bottom-up analysis in order to select securities.

This Zacks sector - Sector-Finance product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

PRISX has an annual expense ratio of 0.87%, which is below the category average of 1.41%. The fund has three and five-year returns of 9.9% and 8.5%, respectively.

Fidelity Select Health Care Services Portfolio FSHCX fund invests a large chunk of its assets in companies that either own or are involved in operating hospital and nursing homes, and are related to the healthcare services sector. FSHCX seeks appreciation of capital. The fund invests in securities of both U.S. and non-U.S. companies.

This Zacks sector - Sector-Health product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSHCX has an annual expense ratio of 0.76%, which is below the category average of 1.26%. The fund has three and five-year returns of 18.1% and 12.5%, respectively.

Fidelity Select Leisure Portfolio FDLSX fund invests a bulk of its assets in securities of companies engaged in the design, production or distribution of goods or services in the leisure and recreation industries. The fund seeks growth of capital and invests both in U.S. and non-U.S. companies.

This Zacks sector - Sector-Other product has a history of positive total returns for more than 10 years. To see how this fund performed compared in 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 1.26%. The fund has three and five-year returns of 15.6% and 11.1%, respectively.

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Click to get this free report Get Your Free (PRISX): Fund Analysis Report Get Your Free (FSHCX): Fund Analysis Report Get Your Free (FDLSX): Fund Analysis Report To read this article on Zacks.com click here. Zacks Investment Research