5 Service-Based Funds To Gain From 45-Year Low Jobless Claims

U.S. Labor Department’s weekly initial claims data for the week ended Mar 24 reached its lowest level since the week ended Jan 27, 1973. Moreover, jobless claims fell significantly in the first quarter of 2018. This in turn offered fresh evidence that the labor market is in good shape. Additionally, the U.S. labor market remained firm supported by strong job additions and a record-low unemployment level.

Strong non-farm payrolls data for February along with continuing decline in the weekly jobless claim indicates that employers will continue to expand their payroll. Following this development, the service-related sectors looked quite attractive. Thus, investing in mutual funds having significant exposure to services-related companies seems prudent at this point.

Jobless Claims Continues to Slip

On Mar 29, the U.S. Labor Department data revealed that weekly jobless claims decreased 12,000 to a seasonally adjusted 215,000 for the week ended Mar 24. This was the 158th consecutive week that the number of Americans filing for unemployment benefits remained below the 300,000 threshold. The continued decline in weekly jobless claims data reflected the longest such trend since 1970.

The four-week moving average of initial claims dropped 500 to 224,500 for the week. This metric is considered a better measure of labor market trends as it eliminates weekly fluctuations. Weekly initial claims fell from the week ended Jan 6, 2018 of 247,000 to 215,000 last week, registering a decline in jobless claims by 32,000 so far in the first quarter.

February Jobs Data Upbeat

U.S. employers added 313,000 new jobs in February, after an upwardly revised 239,000 in January and surpassing our expectations of 208,000 jobs. The February figure marks the highest rise in payrolls since July 2016. Solid job gains in construction, retail trade, professional and business services, manufacturing, financial activities, and mining sectors drove the numbers.

Rate of unemployment was 4.1%, unchanged from the prior month's 17-year low. The average workweek recovered to 34.5 hours after falling to 34.4 hours in January. Average hourly earnings rose 0.1% to $26.75 in February, marking a slowdown from the 0.3% rise in January. This weighed on the year-on-year increase in average hourly earnings. This highlighted that a robust domestic labor market is operating at its near-full employment level at present.

Buy These 5 Buy-Ranked Mutual Funds

The latest jobless claims data bode well for the service-focused industry. Following these developments, investors may consider investing in service sector-related mutual funds. We have selected five mutual funds that flaunt a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging one-year and three-year annualized returns. They also have minimum initial investment within $5000 and 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.

Fidelity Select Consumer Discretionary Portfolio FSCPX seeks appreciation of capital. FSCPX normally invests a bulk of its assets in securities of companies principally engaged in the manufacture and distribution of consumer discretionary services and products. The fund invests in both U.S. and non-U.S. companies.

FSCPX has an annual expense ratio of 0.76%, lower than the category average of 1.34%. The fund has one-year and three-year annualized returns of 29.1% and 14.9%, respectively. FSCPX has a Zacks Mutual Fund Rank #1.

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 in order to select securities.

PRISX has an annual expense ratio of 0.93%, lower than the category average of 1.47%. The fund has one-year and three-year annualized returns of 17% and 12.2%, respectively. PRISX has a Zacks Mutual Fund Rank #1.

Prudential (LON:PRU) Jennison Utility A PRUAX seeks returns through growth of capital and income. PRUAX invests a huge chunk of its assets in equity securities and investment-grade debt securities of utility services providers.

PRUAX has an annual expense ratio of 0.82%, lower than the category average of 1.19%. The fund has one-year and three-year annualized returns of 0.1% and 2.3%, respectively. PRUAX has a Zacks Mutual Fund Rank #2.

Dreyfus Technology Growth A DTGRX seeks growth of capital. DTGRX invests the majority of its assets in stocks of growth-oriented technology companies from different market-cap. The fund invests around one-fourth of its assets in foreign companies.

DTGRX has an annual expense ratio of 1.26%, lower than the category average of 1.38%. The fund has one-year and three-year annualized returns of 41% and 18.3%, respectively. DTGRX has a Zacks Mutual Fund Rank #2.

Fidelity Select Transportation FSRFX seeks capital growth. FSRFX invests a large part of its assets in securities of companies involved in the design, manufacture and sale of transportation equipment as well as providing transportation services. The non-diversified fund invests in both U.S. and non-U.S. companies.

FSRFX has an annual expense ratio of 0.83%, lower than the category average of 1.24%. The fund has one-year and three-year annualized returns of 22.8% and 10.8%, respectively. FSRFX has a Zacks Mutual Fund Rank #2.

Want key mutual fund info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>