Mutual Funds To Buy Amid Global Jitters
Global growth fears have been prominent in recent times. Dismal economic data out of China had sparked jitters in the global markets. Also, disappointing factory data in the Eurozone recently, dampened investor sentiment. The record exports data from Germany was a bright spot, but that is not enough to dispel the global growth fears. In fact China, the second largest economy, poses a big threat as acknowledged by the IMF. They believe China’s slowdown may have graver repercussions on other countries than what was forecasted. The U.S. markets were not immune to the global market rout, but economic data looks convincing enough to suggest that the U.S. is relatively better positioned. Latest data showed that the U.S. economy has recovered significantly from the sluggish growth conditions in the first quarter. In this situation, mutual funds that mostly hold companies with a domestic focus are likely to gain from improving fundamentals. China, Europe Jitters China The China Federation of Logistics and Purchasing reported that the official manufacturing PMI index declined to a three-year low in August to 49.7 from July’s reading of 50. Meanwhile, the final Caixin Manufacturing Purchasing Managers’ index fell from 47.8 in July to 47.3 in August, reaching its lowest level in the last 77 months. The reading below 50 signaled that manufacturing activity contracted in August. Moreover, a plunge of 8.3% in exports and a decline of 8.1% in imports in July indicated the world’s second biggest economy is suffering from both weak global and domestic demand. It was also reported that producer prices declined to the lowest level in six years in July. Yesterday, data from China proved to be dismal once more. Fears of China-led global slowdown intensified after the National Bureau of Statistics in China showed China’s fixed-asset investment growth slowed to 10.9% in the first eight months of 2015. This is the weakest in about 15 years. Alongside, factory output increased 6.1% in August from prior year period. This missed the market expectations of a 6.4% gain. China stocks dropped the most it had in three weeks and also dampened sentiment in the U.S. markets. These disappointing data raised concerns that China may fail to achieve the target of 7% GDP growth rate this year Europe Investors are also worried about the economic condition of Europe. The final reading of Markit’s manufacturing PMI came in at 52.3 in August, below July’s reading of 52.4. Though the reading of the index reached a 16-month high in Germany, the reading out of France and Italy declined to the lowest level in the last four months. Meanwhile, the Markit/Cips U.K. manufacturing PMI declined from 51.9 in July to 51.5 in August, indicating a slowdown in manufacturing activity in the U.K. Meanwhile, it was also reported that the Euro zone’s inflation rate was at only 0.2% in August, significantly below the targeted rate of 2%. Last month, Eurosat reported that the common currency bloc expanded at a rate of only 0.3% in the second quarter, down from the first quarter’s growth rate of 0.4%. Last week, the Bank of England (BOE) decided to keep the key interest rate unchanged. The committee members voted 8-1 in favor of keeping the interest rate flat at 0.5%. It acknowledged that the China developments has increased downside risk to the global economy, but didn’t see any effect on the U.K. economy yet. The U.K. Office for National Statistics recently reported that manufacturing production declined at an adjusted rate of 0.8% in July, compared to a rise of 0.2% in the previous month. Most of the manufacturing sub-sectors witnessed a decline in production during July. The bright spot from Europe has been the Germany exports data. According to Germany’s Federal Statistics Office, exports gained a seasonally adjusted 2.4% from the prior month to 103.4 billion euros ($115.35 billion) in July. Imports were up 2.2% to 80.6 billion euros. These are the highest values since records started in 1991. Both exports and imports comprehensively beat expectations of gains of 0.7% and 0.5% respectively. On a seasonally adjusted basis, foreign trade balance showed a surplus of 22.8 billion euros. U.S. Shows Strength Amid the global concerns, the U.S. has done relatively well. Right now, uncertainty prevails over the rate hike decision. It is not clear if the FED will raise rates during the two-day policy meeting that begins tomorrow. However, the economic indicators are fairly encouraging. Despite global growth coming to a grinding halt, the “second estimate” released by the U.S. Department of Commerce last month showed that the GDP in the second quarter advanced at a pace of 3.7%, significantly higher than the first quarter’s rise of only 0.6%. The report also showed that gross domestic purchases surged at a rate of 3.4% during the quarter compared to a gain of 2.5% in the first indicating an increase in domestic demand. Also, the personal consumption expenditure (PCE) price index gained 1.5% during the quarter, a turnaround from the first quarter’s 1.9% decline. Though August jobs data came lower than expected, June and July’s job additions were revised higher. Analysts note that August’s job numbers have been revised higher later due to seasonal factors. Separately, the unemployment rate fell to 5.1% in August, its lowest level since Apr 2008. The unemployment rate was also lower than the consensus estimate of 5.2%. The unemployment rate was within the Fed’s goal of full employment. 3 Domestic Funds to Buy Funds that have limited international exposure should be more shielded from global growth concerns. Meanwhile, these domestically focused funds are poised to benefit from the favorable economic environment in the U.S. Thus, we present 3 funds that hardly have foreign stock holdings. The following funds also carry a Zacks Mutual Fund Rank #1 (Strong Buy). We expect the funds to outperform its 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 the likely future success of the fund. The funds have encouraging year-to-date, 1-year and 3 and 5-year annualized returns. The minimum initial investment is within $5000. The Oppenheimer Discovery Fund A (MUTF: OPOCX ) primarily focuses on acquiring common stocks of domestic companies having impressive growth potential. OPOCX invests in securities of small cap companies having market capitalizations below $3 billion. As of the last filing, OPOCX, a Small Growth fund, allocates their fund in two major groups; Small Growth and Large Growth. OPOCX currently carries a Zacks Mutual Fund Rank #1. The fund has gained 6.7% and 9.6% in the year-to-date and 1-year periods. The 3 and 5 year annualized returns are 14% and 17.7%. Expense ratio of 1.12% is lower than the category average of 1.33%. The Neuberger Berman Mid Cap Growth Fund A (MUTF: NMGAX ) invests a large chunk of its assets in companies having market cap size identical to those included in the Russell Midcap Index. NMGAX maintains a diversified portfolio by investing in common stocks of companies across a wide range of sectors and industries. NMGAX may focus on specific sectors that are expected to gain from market or economic trends. NMGAX, as of the last filing, allocates their fund in three major groups; Small Growth, Large Growth and Large Value. NMGAX currently carries a Zacks Mutual Fund Rank #1. The fund has gained 7.1% and 11.1% in the year-to-date and 1-year periods. The 3 and 5 year annualized returns are 14.8% and 15.5%. Expense ratio of 1.11% is lower than the category average of 1.29%. The Diamond Hill Select Fund A (MUTF: DHTAX ) seeks to provide capital growth over the long term. DHTAX invests in 30-40 U.S. equities which the Adviser believes are undervalued. These equity securities may be of any size. The adviser estimates a company’s value devoid of its market price and also takes into effect the industry competition, regulatory factors and various industry factors among others. As of the last filing, DHTAX, a Large Value fund, allocates their fund in three major groups; Large Value, Large Growth and High Yield Bond. DHTAX currently carries a Zacks Mutual Fund Rank #1. The fund has gained 2.9% and 7.5% in the year-to-date and 1-year periods. The 3 and 5 year annualized returns are 18.8% and 15.2%. Expense ratio of 1.20% is however higher than the category average of 1.11%. Link to the original post on Zacks.com