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2 Mutual Funds to Gain From Oil's Recent Slump

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Oil futures moved south on Sep 11, stooping to their lowest in about a week, on reports that President Trump is considering easing sanctions on Iran. Oil prices slumped on the possibility that Iran’s crude might join the global oil market again.

Therefore, it’s ideal to invest in a couple of mutual funds that invest in companies that could benefit from low oil prices.

Trump Could Ease Sanctions on Iran

Tensions between the United States and Iran are not new. Earlier this year, repeated attacks on oil tankers and an unmanned U.S. drone near the Strait of Hormuz led to tensions between the two countries. The Strait of Hormuz accounts for approximately a third of the world’s oil traffic via sea.

The United States alleged that Iran had carried out these attacks. However, Iran had denied the attacks on oil tankers and had firmly said that the U.S. drone was in Iranian airspace. Following this, Trump imposed “hard-hitting” sanctions on the Middle Eastern country.

The sanctions denied Iran’s Supreme Leader Ayatollah Ali Khamenei and his office access to crucial financial resources. Moreover, sanctions were imposed on military leaders responsible for shooting the unmanned U.S. drone down.

These sanctions were in addition to a set of previous sanctions that restricted Iran’s oil industry and other key sectors. Since oil plays a vital role in Iran’s economy, crippling its oil industry proved to be a serious setback for the country’s economy.

However, with the recent development of Trump firing National Security Advisor John Bolton earlier this week, who strongly backed putting pressure on Iran, chances of a military conflict between the two countries have decreased significantly.

What’s more, Trump could consider easing sanctions on the Islamic country as well in a bid to secure a deal. There are also chances of Trump meeting Iran’s president Hassan Rouhani later this month in New York during the annual United Nations General Assembly.

The news led to West Texas Intermediate (WTI) crude oil futures shedding 2.9% to reach $55.75 a barrel and Brent crude declining 2.3% to hit $60.96 a barrel on Sep 11.

Our Choices

We have, therefore, selected two mutual funds that invest in transportation, aerospace, defense and other such companies. Both 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).

Fidelity Select Defense & Aerospace Portfolio (FSDAX - Free Report) fund aims for capital growth. The fund invests the majority of its assets in companies that are engaged in the research, manufacture and/or sale of products and/or services in the defense or aerospace industries. FSDAX mostly invests in common stocks. Boeing, Northrop Grumman and General Dynamics are among the top holdings of the fund.

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.

FSDAX carries a Zacks Mutual Fund Rank #1. The fund has an annual expense ratio of 0.75%, which is below the category average of 1.01%. The fund has returned 31.4% on a year-to-date basis. FSDAX has no minimum initial investment.

Fidelity Select Industrials Portfolio (FCYIX - Free Report) fund seeks capital appreciation. The fund invests the majority of its assets in companies that are engaged in the research, development, manufacture, distribution, supply and/or sale of industrial products, services and/or equipment. FCYIX mostly invests in common stocks. AMETEK, Union Pacific and Boeing are among the top holdings of the fund.

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.

FCYIX carries a Zacks Mutual Fund Rank #2. The fund has an annual expense ratio of 0.76%, which is below the category average of 1.01%. The fund has returned 20.7% on a year-to-date basis. FCYIX has no minimum initial investment.

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