3 Safe Mutual Funds to Ride Out Renewed US-China Tensions

Wall Street remains choppy owing to new tensions brewing between the world’s two most powerful economies — the United States and China. Although the phase one trade deal was signed in January, the rapid spread of coronavirus all over the world and a high number of casualties in the United States gave rise to fresh tensions. Hostility also heightened following the Senate’s new legislation that was passed last week.

In such a scenario, betting on mutual funds that invest in industries considered “safe” in the face of geopolitical tensions could be wise for investors. These mutual funds mostly invest in securities of companies in the healthcare and consumer staples space. These industries seldom witness declining demand and likewise lesser business activity, thanks to the nature of products and services they offer. Let us thus take a look at the factors that make it important to invest in these industries.

Beijing Held Accountable by U.S. Over Coronavirus

The week ended May 23 was quite eventful. First, White House economic adviser Larry Kudlow on May 21 said that the Phase 1 trade agreement between the United States and China was intact and didn’t call for renegotiation. Kudlow was made his disappointment over China’s handling of the coronavirus pandemic known. His sentiments were a mere reflection of President Donald Trump’s words holding China accountable for the virus’ rapid spread.

The rising tensions between the two countries made its way to the financial markets on May 21. At the close of Thursday’s trading session, the broader S&P 500 index lost 0.8% to close at 2,948.51, the Dow Jones Industrial Average declined 0.4% to hit 24,474.12 and the tech-laden Nasdaq Composite lost 1% to close at 9,284.88. In addition, another reason for this slump in major U.S. stock exchanges was a new bill passed by the Senate last week.

Chinese Companies Could be Dropped From U.S. Stock Exchanges

The Senate passed a new bill on May 20 that has the potential to eliminate nearly 800 Chinese companies from major U.S. stock exchanges. To put it simply, those U.S.-listed Chinese companies can may no longer gain from investments by American investors.

The Holding Foreign Companies Accountable Act was submitted by Senator John Kennedy for unanimous consent. The legislation was approved without objection. The new bill was co-sponsored by Democratic Senator Chris Van Hollen of Maryland and Republican Senator Kevin Cramer of North Dakota.

The new legislation came after the Trump administration made its stand clear on strict watch over Chinese companies’ operations in the country. On May 19, Larry Kudlow told Fox Business Network that “we have to” seek more accountability from Chinese companies listed on major U.S. stock exchanges.

Kudlow also said that the bill was required for investor protection and national security as many of these Chinese companies have “had scandals” and were responsible for the loss of investors’ money. This was owing to the companies’ lack of transparency, which was mostly because of the Chinese government, which forbids that kind of directness.

Some of the companies in the line of fire are ecommerce giant Alibaba Group Holding Limited (BABA), Chinese search engine leader Baidu, Inc. (BIDU), video game and social media giant Tencent Holdings Limited (TCEHY) and Luckin Coffee Inc. (LK).

It remains to be seen whether the bill is approved by the Democratic-controlled House of Representatives before it can reach President Trump’s desk to be signed into law.

3 Funds to Invest in Right Away

We have, therefore, selected three mutual funds that invest in consumer staples and healthcare. Given the current scenario, buying funds that invest in healthcare companies would be prudent. Also, considering the products and services the sector offers, demand for these will seldom wane. This is why healthcare is an extremely “safe” sector to invest in.

Also, the consumer staples industry is of prime importance in any given scenario because of food and other essential products. This is what makes the industry “safe” to buy into when markets are volatile.

These funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). In addition, the minimum initial investment for these funds 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).

Fidelity Select Pharmaceuticals Portfolio FPHAX fund aims for capital growth. The fund invests the majority of its assets in securities of companies engaged in various operations in the pharmaceutical industry. The non-diversified fund invests mostly in common stocks of companies. FPHAX invests in U.S. and non-U.S. companies alike.

This Zacks Sector – Health 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 has an annual expense ratio of 0.78%, which is below the category average of 1.24%. It has returned 24.3% over the past year. The fund has no minimum initial investment.

Hartford Healthcare HLS Fund Class IA HIAHX aims for long-term capital growth. The fund invests the majority of its assets in securities of healthcare companies. It may invest across companies of all market capitalizations. HIAHX invests in securities of U.S. and non-U.S. companies alike.

This Zacks Sector – Health 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.

HIAHX has an annual expense ratio of 0.92%, which is below the category average of 1.24%. It has returned 18.2% over the past year. The fund has no minimum initial investment. HIAHX carries a Zacks Mutual Fund Rank #2.

Fidelity Advisor Consumer Staples Fund Class A FDAGX aims for capital appreciation. The fund invests the majority of its assets in securities of companies that manufacture and market consumer staples products. The non-diversified fund invests mostly in common stocks of companies. FDAGX invests in U.S. and non-U.S. companies alike.

This Zacks Sector – Other 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.

FDAGX has an annual expense ratio of 1.04%, which is below the category average of 1.19%. It has returned 2.8% over the past five years. The fund has no minimum initial investment.

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