US Service Sector Gathers Pace in September: 4 Fund Winners


On Sep 5, the Institute for Supply Management (ISM) reported that its index for activity among non-manufacturing companies rose to 57.8% in September from 56.9% the month before. A reading above 50 indicates growth in the service sector, which accounts for nearly 90% of the U.S. economy. September’s figure points to the fact that the sector grew at an unexpectedly faster rate. In fact, the ISM non-manufacturing index now stands above its pre-pandemic level of 57.3% in February and marked growth for the fourth straight month in September.

The report highlights that September’s uptick was due to a surge in new orders, as the sub-index jumped to 61.5% from 56.8% in August. The survey highlighted comments from respondents who stated that new orders grew significantly as business activity resumed and as retail activity picked up. Moreover, increase in demand as businesses reopen and more people driving also let to the growth.

Similarly, a surge was reported in employment as the sector saw job additions rising from 47.9% in August to 51.8% in September. Several businesses have called back furloughed employees due to higher surgical volumes and many others “continue to hire to meet increased demand.”

Additionally, ISM’s business activity index rose to 63% in September from 62.4% in the previous month. This was the fourth consecutive month of growth and 16 industries reported an increase in business activity. Respondents underscored that the spike in activities was due to “end of fiscal year spending” and resumption of projects which were put on hold due to the coronavirus pandemic.

4 Top Mutual Fund Picks

ISM’s report indicates a significant rebound in the U.S. service sector. Hence, we have shortlisted four mutual funds from retailers, health-care and business services providers that carry a Zacks Mutual Fund Rank #1 (Strong Buy) and are poised to gain. Moreover, these funds have encouraging year-to-date (YTD) returns. Additionally, the minimum initial investment is within $5000. We expect these funds to outperform their peers in the future.

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 Leisure Portfolio FDLSX fund aims for capital appreciation. This non-diversified fund primarily invests in common stocks of companies that are principally engaged in the design, production or distribution of goods or services in the leisure industries.

This Zacks sector – Other product has a history of positive total returns for more than 10 years. Specifically, the fund’s returns are 8.9% over the past 3 years. To see how this fund performed compared with its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FDLSX has an annual expense ratio of 0.76%, which is below the category average of 1.27%.

Fidelity Select Financial Services Portfolio FIDSX fund aims for capital appreciation. This non-diversified fund primarily invests 80% of its assets in common stocks of companies principally engaged in providing financial services to consumers and industry. FIDSX invests in domestic and foreign issuers.

This Zacks sector – Finance product has a history of positive total returns for more than 10 years. Specifically, the fund’s returns are 1.4% over the past 3 years. To see how this fund performed compared with its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FIDSX has an annual expense ratio of 0.77%, which is below the category average of 1.43%.

Fidelity Select Retailing Portfolio FSRPX fund aims for capital appreciation. This non-diversified fund primarily invests in common stocks. And 80% of its net assets are invested in companies principally engaged in merchandising finished goods and services primarily to individual consumers.

This Zacks sector – Other product has a history of positive total returns for more than 10 years. Specifically, the fund’s returns are 26.2% over the past 3 years. To see how this fund performed compared with its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSRPX has an annual expense ratio of 0.74%, which is below the category average of 1.27%.

T. Rowe Price Health Sciences Fund PRHSX aims for long-term capital appreciation. The majority of this non-diversified fund’s assets are invested in the common stocks of companies engaged in the research, development, production, or distribution of products or services related to health care, medicine, or the life sciences.

This Zacks sector – Health product has a history of positive total returns for more than 10 years. Specifically, the fund’s returns are 14.8% over the past 3 years. To see how this fund performed compared with its category, and other 1 and 2 Ranked Mutual Funds, please click here.

PRHSX has an annual expense ratio of 0.76%, which is below the category average of 1.26%.

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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.

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