The Institute for Supply Management (ISM) stated that its manufacturing index increased for the 113th month on the trot in September.

Such an increase was achieved on the back of robust demand. Despite trade war remaining a concern for factories, manufacturing activities improved steadily, indicating that the U.S. economy has remained largely resilient. Under such circumstances, betting on mutual funds with significant exposure to the manufacturing sector would fetch alluring returns.

Manufacturing Activity Increases for 113th Month

The ISM Manufacturing Index increased to 59.8% last month, in line with the consensus estimate. Although the reading came in lower than 61.3% in August, a level above 50% implies that the manufacturing sector is expanding.

The fall in the metric can, therefore, be deemed momentary as it stems from concerns related to tariffs. What should rather be noted is that industrial output remained strong in the month as business houses raised spending on machinery and equipment. Further, healthy domestic demand on the back of steadily rising wages, low tax rates and robust labor market conditions kept the sector afloat.

Factors Contributing to Growth

The Production Index surged 63.9% last month, increasing 0.6 percentage points from August. Further, the Employment Index increased to 58.8% in September, registering a 0.3 percentage point increase from August. This was its highest reading since February.

Further, the New Export Orders Index gained 56% in September, an increase of 0.8 percentage points from August. This was the 31st consecutive month of gains for the metric.

Of the 18 manufacturing industries that were surveyed, 15 reported growth. Such industries include textile mills, miscellaneous manufacturing, plastics & rubber products, computer & electronic products, food, beverage & tobacco products, machinery, apparel, leather & allied products, and paper products.

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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.