Per the latest report from the Institute of Supply Management (ISM) on Sep 1, manufacturing activity in the United States rose for the fourth consecutive month in August. Of the 18 manufacturing industries that were surveyed, 15 reported growth.

These industries included wood products, plastics & rubber products, food, beverage & tobacco products, textile mills, chemical products, computer & electronic products, primary metals, fabricated metal products, machinery, apparel, leather & allied products, nonmetallic mineral products, miscellaneous manufacturing, electrical equipment, appliances & components, paper products, and transportation equipment.

Under such circumstances, investing in mutual funds having significant exposure to the manufacturing and industrial companies seems prudent.

U.S. Manufacturing Activity the Highest Since January 2019

The ISM Manufacturing Index increased to 56% in August from 54.5% in the previous month. The metric also surpassed the consensus estimate of 54.5% and reached its highest settlement since January 2019. A level above 50% implies that the manufacturing sector is expanding.

The new orders index increased 6.1 percentage points to 67.6% in August. Meanwhile, the production index increased 1.2 percentage points to hit 63.3%. Notably, the employment index increased 2.1 percentage points to hit 46.4%.

Additionally, the prices index increased 6.3 percentage points to 59.5%, reflecting an increase in raw materialprices for the third month on the trot. A prices index above 52.5% is considered consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

3 Best Funds to Buy Now

Given such positives, we have highlighted three mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 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.

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.

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.

Fidelity Select Automotive Portfolio (FSAVX - Free Report) fund seeks capital appreciation. This fund invests the majority of its assets in common stocks of companies involved in the manufacture, marketing or sale of automobiles, trucks, specialty vehicles, parts, tires and related services.

This Sector - Other product has a history of positive total returns for over 10 years. Specifically, the fund has returned 10.8% over the three-year and 6.2% over the five-year benchmarks. 

FSAVX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 1.00%, which is below the category average of 1.27%.

Fidelity Select Chemicals Portfolio (FSCHX - Free Report) fund seeks capital appreciation. The fund normally invests at least 80% of its assets in common stocks of companies principally engaged in the research, development, manufacture, or marketing of products or services related to the chemical process industries.

This Sector - Other product has a history of positive total returns for over 10 years. Specifically, the fund has returned 4.3% over the five-year benchmark.

FSCHX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.78%, which is below the category average of 1.36%.

Fidelity Select Industrials Portfolio (FCYIX - Free Report) fund seeks capital appreciation. It normally invests a large portion of its assets in the common stock of companies principally engaged in the research, development, manufacture, distribution, supply, or sale of industrial materials, equipment, products, or services.

This Sector - Other product has a history of positive total returns for over 10 years. Specifically, the fund has returned 3.8% over the three-year and 5.9% over the five-year benchmarks. 

FCYIX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.76%, which is below the category average of 1.10%.