In September, the unemployment rate declined to its lowest level in nearly 49 years. However, job additions came in significantly below expectations, even though the broader employment picture remained robust. Further, even though September's number missed projections, the figures for July and August were revised upward. Also, the labor force participation rate remained unchanged.
Meanwhile, the pace of wage growth declined year over year. However, the metric is widely expected to exceed 3% as firms compete to hire an ever smaller pool of skilled workers. Once again, professional and business services led job gains. In this context, mutual funds that have significant exposure to these sectors are considered a strong investment choice. But first, let's take a peek into the data.
Unemployment Lowest Since 1969
Though job additions for September came in under most expectations, the unemployment rate declined from 3.9% to 3.7%. This is the lowest level registered since December 1969 and below the estimated rate of 3.8%. The U6 unemployment rate, which includes people forced into part-time work and people only sporadically looking for jobs, also inched up from 7.4% to 7.5%.
However, this is still a considerably low level. More significantly, the decline in unemployment was not due to a contract in the labor pool. The civilian labor force expanded by 150,000. Additionally, the labor force participation rate remained unchanged at 62.7%. But the number of individuals who aren't considered part of the labor force rose by 74,000 to around 96.4 million.
Professional and Business Services Lead Gains
The economy added 134,000 jobs in September, significantly below the consensus estimate of 183,000. This is the smallest number of job additions over the last 12 months. Most economists attributed last month's sub-par job gains to the impact of Hurricane Florence. This was visible in the decline of leisure and hospitality jobs, which shrunk by 17,000.
But job additions for July and August were revised upward by a combined 87,000. While July's job additions were increased from 147,000 to 165,000, August's gains were revised upward to 270,000 from 201,000. Notably, monthly job additions have averaged 201,000 over the past one year and 190,000 over the last three months.
At the forefront of job gains were healthcare, construction, manufacturing and transportation and warehousing, which added 26,000, 23,000, 18,000 and 24,000 jobs, respectively. However, the largest contributor to job additions was professional and business services with 54,000 new jobs. The sector has added 560,000 jobs in the last 12 months.
Buy These 5 Sectoral Mutual Funds
Here, we have selected mutual funds that have significant exposure to sectors that saw strong job additions in September. All these funds have a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Further, these funds have encouraging one-year annualized returns and minimum initial investment within $5000. Also, these funds have low expense ratios.
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.
T. Rowe Price Financial Services 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 to select securities.
The fund has one-year annualized returns of 8.7% and an expense ratio of 0.85% compared with the category average of 1.41%. PRISX has a Zacks Mutual Fund Rank #1.
Fidelity Select Software & IT Services PortfolioFSCSX invests the majority of its assets in companies whose primary operations are related to software or information-based services. FSCSX primarily focuses on acquiring common stocks of both domestic and foreign companies. The fund uses fundamental analysis to select companies for investment purposes.
The fund has one-year annualized returns of 33.4% and an expense ratio of 0.73% compared with the category average of 1.38%. FSCSX has a Zacks Mutual Fund Rank #2.
Prudential Jennison Financial Services A PFSAX seeks capital growth for the long run. PFSAX invests a huge portion of its assets in equity securities of asset management companies, securities/brokerage firms, mortgage banking companies, banks, insurance companies, industrial finance companies and leasing companies.
The fund has one-year annualized returns of 10% and an expense ratio of 1.34% compared with the category average of 1.41%. PFSAX has a Zacks Mutual Fund Rank #2.
Fidelity Select Health Care Services Portfolio FSHCX 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.
The fund has one-year annualized returns of 34.9% and an expense ratio of 0.77% compared with the category average of 1.39%. FSHCX has a Zacks Mutual Fund Rank #1.
T. Rowe Price Communications & Technology Investor PRMTX seeks growth of capital for the long run. PRMTX invests a major portion of its assets in securities of companies involved in communications and technology sectors. The non-diversified fund invests in both domestic and foreign companies.
The fund has one-year annualized returns of 18.3% and an expense ratio of 0.78%, while the category average is 1.39. PRMTX has a Zacks Mutual Fund Rank #1.
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