The U.S. manufacturing sector is finally gaining momentum after more than three years of sluggish performance. New data from the Institute of Supply Management shows that the Manufacturing Purchasing Managers Index (PMI) rose far more than expected in January, pointing to a recovery that began taking shape last year.
While elevated prices remain a concern for the broader economy, those pressures have eased over the past year, helping to fuel stronger demand. Against this improving backdrop, investors may want to consider funds like Fidelity Select Automotive Portfolio FSAVX and Fidelity Select Defense & Aerospace Portfolio FSDAX that are likely to benefit in the near term.
Manufacturing Activity Picks Up
The ISM Manufacturing PMI surged to 52.6 in January from 47.9 in December and surpassed the consensus estimate of a rise to 48.5. This marked the highest reading since 2022 and signaled the sector’s first expansion in a year. PMI readings above 47.5 for a substantial period typically indicate broader economic growth.
January’s rebound was largely driven by a sharp jump in new orders. The New Orders Index jumped 9.7% to 57.1, from 47.4 in December, reaching its highest level since February 2022 and posting its first gain since August 2025.
Production activity also strengthened. The Production Index rose to 55.9 from 50.7 in December, marking its strongest level since February 2022.
Easing inflation over the past two quarters, along with the Federal Reserve’s 75-basis-point rate cuts last year, has helped lower borrowing costs and reduce price pressures, supporting rising demand.
The Federal Reserve kept interest rates unchanged in its January meeting in the range of 3.5% to 3.75% but signaled openness to further cuts if inflation continues to cool. Earlier, the Fed projected inflation could slow to 2.4% by the end of 2026, while economic growth is expected to accelerate to 2.3% this year.
2 Best Choices
We have, thus, selected two mutual funds with significant exposure to the manufacturing sector, each 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 five-year returns. Additionally, the minimum initial investment is within $5000.
The question here is why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Fidelity Select Automotive Portfolio fund aims for capital appreciation. FSAVX invests most of its assets in common stocks of companies engaged in manufacturing automobiles, trucks, specialty vehicles, parts, tires and related services.
Fidelity Select Automotive Portfolio fund has a history of positive total returns for over 10 years. FSAVX has returned 17.9% and 5.8% over the past three and five years, respectively. Fidelity Select Automotive Portfolio has a Zacks Mutual Fund Rank #2 and an expense ratio of 0.79%, which is lower than the category average.
To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
Fidelity Select Defense & Aerospace Portfolio invests a huge portion of its assets in the securities of companies involved primarily in the research, manufacturing, and sale of products and services in the defense or aerospace industries. FSDAX seeks capital growth by investing in both U.S. and non-U.S. companies.
Fidelity Select Defense & Aerospace Portfolio fund has a history of positive total returns for over 10 years. FSDAX has returned 26.4% and 17.8% over the past three and five years, respectively, and has a Zacks Mutual Fund Rank #2. Fidelity Select Defense & Aerospace Portfolio fund has an annual expense ratio of 0.64%, which is lower than the category average.
To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
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