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5 Defensive Funds to Ride Out a Turbulent Market

U.S. markets have been on a roller coaster ride for a while, thanks to the ongoing trade-related issues. Also, the unfolding political drama related to Trump's impeachment inquiry is bothering investor sentiment. Plus, a lower consumer confidence level in September doesn’t exactly lift market sentiment.

In such a scenario, mutual fund investors who seek to play it safe can go on defensive mode, investing in selected sectors that aren’t impacted much. Ideally, these funds have considerable exposure to healthcare, consumer staples and utilities sectors.

These funds usually comprise securities of companies that have steady earnings and reliable balance sheets. In addition, products and services from these sectors are always in demand, making these ideal investments in the current market conditions.

Impeachment Inquiry Against Trump

After a whistleblower complaint surfaced on Sep 26 against Trump concerning his July 25 phone call with Ukraine President Volodymyr Zelensky, the president could be looking at a possible impeachment. An official impeachment inquiry had been announced by House Speaker Nancy Pelosi on Sep 24.

The document cites Trump using the power of his office to gain interference from a foreign country in the 2020 presidential election. The document states that Trump put pressure on Zelensky to investigate the activities of the President’s main domestic political rival Joe Biden and his son Hunter Biden.

U.S.-China Trade Deal Still Uncertain

Although matters on the trade war front had started to appear a little brighter, given Trump’s comments of a sooner-than-expected trade deal, a recent development made the scenario uncertain again.

According to Bloomberg, U.S. is unlikely to renew a waiver that allows the country’s firms to supply Chinese telecom giant Huawei Technologies. The company had been blacklisted by the Trump administration in May.

Our Choices

We have, therefore, selected five mutual funds that invest in consumer staples, utilities and healthcare. No matter what the market condition is, demand for utilities products and services such as water and electricity, food products and pharmaceuticals, drugs and healthcare services seldom witness a decline in demand.  This is what makes these sectors ideal for investors who wish to play it safe during turbulent times.

All of these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging year-to-date returns. Additionally, the minimum initial investment is within $5,000.

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 (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

PGIM Jennison Utility Fund- Class A PRUAX aims for total return via capital growth and current income. The fund invests the majority of its assets in equity and related investments, and investment-grade debt securities of utility companies. PRUAX is a non-diversified fund.

This Zacks sector – Utilities product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

PRUAX carries a Zacks Mutual Fund Rank #1. The fund has an annual expense ratio of 0.83%, which is below the category average of 1.12%. It has returned 20.4% on a year-to-date basis. PRUAX has a minimum initial investment of $2500.

Fidelity Select Utilities Portfolio FSUTX fund seeks capital growth. The fund primarily invests in securities of utility companies. The majority of its assets are invested in securities of companies that mostly work with power and gas utilities. The fund mostly invests in common stocks.

This Zacks sector – Utilities product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSUTX carries a Zacks Mutual Fund Rank #1. The fund has an annual expense ratio of 0.78%, which is below the category average of 1.12%. It has returned 16.5% on a year-to-date basis. FSUTX has no minimum initial investment.

Fidelity Select Consumer Staples Portfolio FDFAX fund aims for capital appreciation. The fund invests the majority of its assets in securities of companies that are engaged in activities related to the manufacture, marketing and/or distribution of consumer staples. FDFAX mostly invests in common stocks.

This Zacks sector – Other product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FDFAX carries a Zacks Mutual Fund Rank #2. The fund has an annual expense ratio of 0.77%, which is below the category average of 1.19%. It has returned 22.7% on a year-to-date basis. FDFAX has no minimum initial investment.

Fidelity Select Pharmaceuticals Portfolio FPHAX fund seeks capital growth. The fund invests the majority of its assets in securities of companies engaged in the manufacture, sale and/or distribution of pharmaceutical products. FPHAX mostly invests in common stocks.

This Zacks sector – Health product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FPHAX carries a Zacks Mutual Fund Rank #2. The fund has an annual expense ratio of 0.80%, which is below the category average of 1.22%. It has returned 11.8% on a year-to-date basis. FPHAX has no minimum initial investment.

Fidelity Select Health Care Portfolio FSPHX fund aims for capital appreciation. The fund invests the majority of its assets in securities of companies that are engaged in the design, manufacture and sale of products or services related to health care or medicine. FSPHX mostly invests in common stocks.

This Zacks sector – Health product has a history of positive total returns for more than 10 years. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSPHX carries a Zacks Mutual Fund Rank #2. The fund has an annual expense ratio of 0.71%, which is below the category average of 1.22%. It has returned 10.3% on a year-to-date basis. FSPHX has no minimum initial investment.

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