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Buy 5 Mutual Funds to Tap Record Gains in Consumer Spending

Despite tepid growth in fourth-quarter GDP, consumer spending recorded an encouraging increase, according to the "first estimate" of the Bureau of Economic Analysis (BEA). A low level of borrowing costs, a strong labor market and stable wage growth had a positive impact on household expenditure. Moreover, rising consumer sentiment and optimism over Trump's tax cut policies are expected to keep this growth pace alive this year in consumer spending.

Consumer spending continued to increase at a healthy pace in the last month of 2016. Moreover, an index of consumer sentiment hit a record level in December. The auto and utilities sector, which have attracted a major part of consumer spending, is poised to benefit from this favorable backdrop.

Robust Consumer Spending in Q4

The advance estimate of fourth quarter GDP by BEA shows that the U.S. economy expanded at an annualized rate of 1.9%, slightly below the consensus estimate of 2.2%. However, an encouraging increase in consumer expenditure emerged as one of the few bright spots in the GDP report.

According to the report, consumer spending in the fourth quarter advanced 0.5% in December, registering its best increase since September 2016. Moreover, overall personal spending rose 3.8% in 2016, better than an increase of 3.5% in 2015. Consumer expenditure, the largest contributor to U.S. GDP, accounted for 1.70 percentage points of GDP growth.

The purchase of big ticket items like automobiles rose 1.4% in December giving a boost to the major portion of consumer spending. Also, spending in utilities-related services spiked 0.4% on the back of a cold winter.

Consumer spending is expected to increase further this year following the expectation that Trump may reduce corporate income-tax rate to 15% from 35% as well as cut individual rates. Additionally, consumer sentiment is showing positive signs for markets.

Consumer Sentiment Hits 13-Year High

The University of Michigan Consumer Sentiment index increased from 98.2 in November to 98.5 for the month of December. This reading exceeded all expectations and is the highest observed since 2004. According to the report, 44% of those surveyed expect the economy to improve over 2017. Additionally, 33% of respondents think that the unemployment rate will continue to decline.

Much of the respondents' optimism was driven by the newly found confidence in their financial condition. Rising income and increasing household wealth have provided the brightest outlook for personal finances witnessed in a decade. An increase in the value of stocks and homes also led 41% of those surveyed to think that the outlook for their personal finances has improved.

Buy These 5Mutual Funds

Here, we have selected five mutual funds that have significant exposure to those industries which are expected to gain from stable growth in consumer spending. Moreover, these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). 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.

These funds have encouraging one-year annualized returns and minimum initial investment is within $5000. Also, each of these funds has a low expense ratio.

Fidelity Select TransportationFSRFX invests the majority of its assets in securities of companies involved in design, manufacture and sale of transportation equipment and provides transportation services. The non-diversified fund invests in both U.S. and non-U.S. companies.

FSRFX has an annual expense ratio of 0.80%, lower than the category average of 1.30%. The fund has one-year annualized returns of 39.9%.FSRFX has a Zacks Mutual Fund Rank #1.

American Century Utilities InvestorBULIX invests a large part of its assets in equities related to the utility industry. The fund's portfolio is based on qualitative and quantitative management techniques. In the quantitative process, stocks are ranked on their growth and valuation features.

BULIX has an annual expense ratio of 0.68%, lower than the category average of 1.24%. The fund has one-year annualized returns of 16.6%.BULIX has a Zacks Mutual Fund Rank #1.

Fidelity Select Air Transportation Portfolio FSAIX invests a bulk of its assets in companies primarily engaged in providing air transport services all over the world. FSAIX focuses on acquiring common stocks of companies depending on factors such as financial strength and economic condition.

FSAIX has an annual expense ratio of 0.82%, lower than the category average of 1.30%. The fund has one-year annualized returns of 32%.FSAIX has a Zacks Mutual Fund Rank #2.

Wells Fargo Utility and Telecommunications AEVUAX invests in common and preferred stocks and investment-grade debt securities of utilities and telecom companies. EVUAX also invests around 35% of its assets in convertible debentures of utilities and telecom companies.

EVUAX has an annual expense ratio of 1.14%, lower than the category average of 1.24%. The fund has one-year annualized returns of 11.6%.EVUAX has a Zacks Mutual Fund Rank #2.

Fidelity Select Utilities Portfolio FSUTX invests the lion's share of its assets in common stocks of companies primarily involved in utilities sector, and companies that derive major portion of its revenue from operations related to this sector.

FSUTX has an annual expense ratio of 0.78%, lower than the category average of 1.24%. The fund has one-year annualized returns of 11.9%.FSUTX has a Zacks Mutual Fund Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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