The U.S. manufacturing sector has faced significant challenges over the past three years, but signs now point to a meaningful recovery. While elevated costs and a tightening labor market remain key hurdles, rising demand in recent months has helped lift manufacturing activity.
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.
Industrial Production Jumps
U.S. industrial production rose a strong 0.7% month over month in January, sharply higher than the consensus estimate of a rise of 0.4%, according to data from the Federal Reserve. This followed a 0.2% gain in December and points to a renewed upswing in manufacturing activity.
Industrial production is a key tool to measure changes in inflation-adjusted output from factories, mines, and utilities, and a rise in this indicator is generally viewed as supportive for the U.S. dollar.
The report comes days after the ISM Manufacturing Index showed the PMI climbing to 52.6 in January from 47.9 in December, beating analysts’ expectations of a reading of 48.5. This was the strongest reading since 2022 and marked the first expansion in the sector in 12 months.
Any reading above 47.5% for a prolonged period typically signals broader economic growth. January’s rise was driven largely by a surge in new orders, with the New Orders Index jumping 9.7% to 57.1 — its highest level since February 2022 and its first increase since August 2025.
Meanwhile, inflation has eased over the past two quarters, and last year’s 75-basis-point rate cuts by the Federal Reserve helped reduce borrowing costs and price pressures, encouraging demand.
The Fed kept rates unchanged at its January meeting in the 3.5% to 3.75% range and reiterated that further cuts remain possible if inflation continues to cool this year. The central bank has also expressed optimism that inflation could slow to 2.4% by the end of 2026, while economic growth could accelerate to 2.3%.
2 Best Choices
We have, thus, selected two mutual funds with significant exposure to the manufacturing sector, each carrying a Zacks Mutual Fund Rank #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 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 fundinvests 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 27.8% and 20.8% over the past three and five years, respectively. 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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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
