The Institute for Supply Management (ISM) stated that its manufacturing index increased for the 115th month on the trot in November.

Such an increase was achieved on the back of a spurt in new orders despite the burden of tariffs and a paucity of skilled manpower. Meanwhile, a temporary ceasefire was concluded between the United States and China over the weekend. Under such encouraging circumstances, betting on mutual funds with significant exposure to the manufacturing sector would fetch alluring returns.

Manufacturing Activity Rebounds in November

The ISM Manufacturing Index increased to 59.3% last month, 1.6% higher than the level of 57.7% registered in October, the lowest recorded in 18 months. A level above 50% implies that the manufacturing sector is expanding.

Such encouraging developments point toward the fact that American manufacturing continues to grow despite tariff pressures and labor shortage. This is in keeping with the broader economy, which grew at a 3.5% pace in the third quarter, per the latest estimate.

Factors Contributing to Growth

The new orders index increased by 4.7% to 62.1% in November. The Production Index advanced 0.7% to 60.6% last month. As a result, the manufacturing sector stepped up hiring or encouraged existing workers to put in additional hours overtime. Consequently, the Employment Index increased 1.6% to 58.4%.

Of the 18 manufacturing industries that were surveyed, 13 reported growth. These industries include textile mills, miscellaneous manufacturing, plastics & rubber products, computer & electronic products, machinery, apparel, leather & allied products and paper products, among others.

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 Industrials Fund (FCYIX - Free Report) seeks capital appreciation. FCYIX 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 materials, equipment, products, or services related to cyclical industries.

This Sector - Other product has a history of positive total returns for over 10 years. Specifically, the fund has returned 8.6% over the three-year and 7.6% over the five-year benchmarks.

FCYIX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.77%, which is below the category average of 1.18%.

Fidelity Select Transportation (FSRFX - Free Report) seeks capital growth. FSRFX invests the majority of its assets in securities of companies involved in design, manufacture, and sale of transportation equipment and provide transportation services. The non-diversified fund invests in both U.S. and non-U.S. companies.

This Sector - Other product has a history of positive total returns for over 10 years. Specifically, the fund has returned 12% and 12.1% over the three-year and five-year benchmarks, respectively.

FSRFX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.80%, which is below the category average of 1.18%.

Fidelity Select Defense & Aerospace Portfolio (FSDAX - Free Report) invests a huge portion of its assets in securities of companies involved primarily in the research, manufacture, and sale of products and services as per the defense or aerospace industries. The fund seeks capital growth by investing in both U.S. and non-U.S. companies.

This Sector - Other product has a history of positive total returns for over 10 years. The fund has returned 22.9% over the three-year and 17.7% over the five-year benchmarks.

FSDAX carries a Zacks Mutual Fund Rank #2 and has an annual expense ratio of 0.76%, which is below the category average of 1.18%.