President Trump's huge defense spending bill, ever-growing geopolitical tensions and America's defense resolve should lead to gains for defense stocks in 2019. As a matter of fact, defense stocks have had a great run since Donald Trump's ascension to the post of the United States' President.
Moreover, Trump has allegedly asked his Defense Secretary to present a $750-billion defense budget proposal for fiscal 2020, per a report by Politico. Under such circumstances, adding mutual funds with significant exposure to defense companies seems prudent.
Humongous Defense Budget to Propel Gains for the Space
America's defense sector has gained significantly from the Republican-controlled Congress' humongous defense budget. Moreover, it goes without saying that GOP's tax overhaul late last year also provided the sector the required stimulus for growth.
According to a Bloomberg report, the United States increased missile defense spending by 25% to $9.9 billion in the current fiscal year. Also, in September 2018 the Pentagon announced it would spend approximately $2 billion over the next five years on development of artificial intelligence (AI).
Interestingly, the removal of "sequestration" budget caps last year by the Congress has been a welcome relief for the sector. The amendment also lifted limits on defense spending that have been around since 2013. Finally, the most-recent defense spending bill was passed without any "continuing resolution," which enabled companies to gauge their future sales better.
Space Might Soon Become Reality
As proposed by both Vice President Mike Pence and President Trump, the newest branch of U.S. military would be incorporated by 2020. The force would be officially called "Space Operations Force." America is specifically interested in laying out a layer of sensors in space that can easily detect enemy strikes at the moment of launch.
Pence urged the U.S. Congress to earmark $8 billion over the next five years for the much-ambitious project. He also stated that a fully incorporated space force is going to cost much more.
Notably, the Deputy Defense Secretary, Patrick Shanahan has stated that Pentagon has not commented on the exact cost of the project. Meanwhile, Defense Secretary, James Mattis, who had earlier objected to the program, has now stated that he supports it.
2 Best Funds to Buy Now
Given such positives, we have highlighted two defense mutual funds 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 one-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 ).
Fidelity Select Defense & Aerospace Portfolio FSDAX invests a huge portion of its assets in securities of companies involved primarily in the research, manufacture and sale of products and services, per the defense or aerospace industries. The fund seeks capital growth by investing in both U.S. and non-U.S. companies.
This Sector - Other product has a history of positive total returns for over 10 years. Specifically, the fund has returned 13.8% over the three-year and 9.5% over the five-year benchmarks. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here .
FSDAX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.76%, which is below the category average of 1.19%. Boeing, Northrop Grumman and General Dynamics are three of the fund's top defense holdings.
Fidelity Select Industrials Fund FCYIX seeks capital appreciation. FCYIX normally invests a large portion of its assets in the common stock of companies principally engaged in the research, development, manufacture, distribution, supply, or sale of materials, equipment, products, or services related to cyclical industries.
This Sector - Other product has a history of positive total returns for over 10 years. Specifically, the fund has returned 5.5% over the three-year and 4% over the five-year benchmarks. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here .
FCYIX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.77%, which is below the category average of 1.19%. Boeing, United Technologies and General Dynamics are three of the fund's top defense holdings.
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