Best ETFs And Mutual Funds Betting On Cyclical Stocks

Optimism about near-term prospects for the U.S. economy and markets drove the stock market up in April. Large-cap stock funds were among the best ETFs and mutual funds in the month.


“It was one of the best Aprils for the market,” said Anthony Saglimbene, global market strategist for Ameriprise.

Ahead, many of the best mutual funds and ETFs are betting on cyclicals.

The crux of April’s bullishness and managers’ forward outlook? A growing number of Americans have been getting vaccinated against Covid-19, the disease caused by the coronavirus, says Aram Green, manager of $2.4 billion ClearBridge Select Fund (LCLAX).

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Best ETFs And Mutual Funds: Lifted By Strong Economic Reports

He added, “We had a strong jobs report, housing has been generally strong, the Federal Reserve has reaffirmed its commitment to support the economy and keep interest rate (increases) on hold.”

In April, the S&P 500 rose 5.34%, according to Lipper Inc. data. The Dow Jones industrial average notched a 2.71% gain.

U.S. diversified stock mutual funds returned 4.65% on average in April. Large-cap growth funds led the advance, gaining 6.73% on average.

Best ETFs And Mutual Funds: Parts Of The Market That Excelled YTD

April’s results put U.S. diversified stock mutual funds up 13.48% for the year. Large-cap growth funds ended up with an 8.10% gain for the year. The best year-to-date gain by a major U.S. diversified fund category was the 25.59% jump by small-cap value funds.

Sectors were led by real estate funds. As a group, they averaged a 7.46% April gain. That put them up 15.79% for the year.

The strongest sector category year-to-date was natural resources. After edging up 0.50% in April, they were ahead 25.84% for the year.

For April, world equity funds averaged a 3.32% gain. Those foreign funds were paced by European region funds, which tacked on 4.89% last month.

World equity funds were up 7.12% year-to-date once April was done. European region funds were also the year-to-date leaders. They were up 9.73% as a group.

How Fixed-Income Funds Fared

Among fixed-income mutual funds, general U.S. taxable bond funds eked out a 0.91% gain on average last month. That left them up 0.34% year to date.

General U.S. Treasury funds were the strongest category. They rose 1.53% in April. That cut their year-to-date loss to 6.94%.

Emerging-market local-currency debt funds outshined all taxable bond fund groups in April. They galloped ahead 1.99% last month. That left them down 4.55% for the year.

The best taxable bond fund categories year-to-date through April were high-yield funds, up 2.2%, and short high-yield funds, ahead 2.22%.

General municipal debt funds as a group gained 1.14% in April. That left them up 1.58% on average for the year.

Diversified ETFs That Outperformed In April

It was a similar story among ETFs. The best-performing U.S. diversified stock ETF was Schwab US Large-Cap Growth ETF (SCHG), which gained 7.64%. That made its year-to-date gain 8.90%.

Year to date, the top fund in this group was Invesco S&P SmallCap 600 Revenue (RWJ), up 42.82% after a 1.50% April advance.

Echoing April leadership by real estate stock mutual funds, six of the 10 top ETFs last month were focused on real estate. IShares Cohen & Steers REIT (ICF) led that group with an 8.34% April advance, leaving it up 16.82% for the year.

But basic materials stocks were also strong, reflecting expectations for a rebound in overall economic activity. Three of the four top-performing sector ETFs in April invest in basic materials.

Global X Copper Miners was April’s best in that group, soaring 10.97% in the month and putting it up 29.97% for the year.

But year to date, most top sector ETFs were cannabis oriented. Amplify Seymour Cannabis (CNBS) lost 7.75% in April but still led year-to-date gainers with a 53.58% advance.

Shifting Winds Buffeted Best ETFs And Mutual Funds In April

Leadership was diverse among international stock ETFs.

Breakwave Dry Bulk Shipping (BDRY) was the month’s top-performing foreign stock ETF with a volcanic 45.98% gain, which padded its year-to-date gain to an eye-popping 220.78%. Not surprisingly, that led all year-to-date gainers.

The best ETFs and mutual funds were buffeted by forces that shifted during April. On the one hand, large-cap growth stock funds outperformed. But cyclical sectors of real estate, basic materials and energy led sectors. Why? In part because growth became overly expensive during the first quarter. In addition, many investors began to think the U.S. economic reopening might not happen as fast as they had anticipated due to many Americans’ hesitation to get vaccinated against Covid-19.

Finally, political fighting meant passage of Biden’s stimulus measures and infrastructure targets were uncertain.

Putnam Multi-Cap Core’s Bets

The $3.2 billion Putnam Multi-Cap Core (PMYAX) is among the best ETFs and mutual funds. It returned 5.18% in April vs. 5.34% for the S&P 500. Through last month, the fund is outperforming the broad market bogey year-to-date and over the past three, five and 10 years, making it one of the best mutual funds.

In the months ahead, managers Arthur Yeager and Jerry Sullivan are spreading their bets. Among cyclicals, they like Summit Materials (SUM), a producer of construction aggregates.

The company has made recent management changes, naming a new chief executive officer in 2020.

“Management has bought stock in the company,” Sullivan said. “The company could get bought out, although that is not why we own shares.”

How Pulte Helps Some Of The Best ETFs And Mutual Funds

Putnam Multi-Cap Core also likes homebuilder PulteGroup (PHM). Pulte rose 12.74% in April. “It’s one of the most diversified housing stocks,” Sullivan said. “We’ll stay with it because the housing shortage is massive. Rising interest rates could hit it. But the housing shortage is so huge that rising rates shouldn’t hurt too much.”

Sullivan says Tenet Healthcare (THC) is another cyclical play. “We like the overall cyclical move in hospitals,” Sullivan said. “Hospitals have been under pressure because of Covid-19. Patients postponed elective procedures like new hips. That’s coming back.”

Why Some Of The Best ETFs And Mutual Funds Like Bank Of America

The prospect of an economic rebound makes No. 4 holding Bank of America (BAC) appealing to the fund. The bank giant rose 4.76% in April, putting it up 34.31% for the year. “It’s better managed than it’s ever been,” Yeager said. “They have an almost unequaled deposit franchise. Their technology is unsurpassed. Incentives for their managers are better than ever. And they’re still not particularly expensive, with a lot of earnings power. That earnings power will come to the forefront.”

The bank’s price-to-earnings ratio is 18. The S&P 500’s is nearly 40. Earnings per share in 2021 are expected to soar 61%, according to MarketSmith.

Yeager said metal exploration and mining company Freeport-McMoRan (FCX) “is a deep cyclical, but we thought there were dramatic tailwinds.”

One of those tailwinds is the Biden administration’s aim of combating global warming by cutting use of greenhouse gases. Expanding use of alternative sources of electricity could spur demand for copper.

As a result, Freeport-McMoRan wants to expand several of its U.S. copper mines to feed an expected surge in demand for the red metal. “We think copper can do better,” Yeager said.

The fund also likes Magna International (MGA). Sullivan describes the stock as a play on electric vehicles, without having to anticipate which individual manufacturers will succeed best.

Best ETFs And Mutual Funds Spread Their Bets

Going forward, it will be important for investors to be diversified, says Green of ClearBridge Select, which topped the broad market in April. That left the fund well ahead of the S&P 500 year-to-date and for the trailing three and five years, making it another of the best mutual funds. The fund opened in 2013.

But Green is cautious. While the broad economy’s reopening is a big positive, “a number of areas could struggle,” he said.

Industries like poultry processing, trucking and restaurants “are struggling to get back workers who are sitting at home collecting stimulus checks,” he said. “They are being compensated for not working.”

A shortage of truckers, for example, means consumers and manufacturers cannot count on availability of products ranging from corn and seeds to metals.

Green added, “So I’m heavily into companies that are positioned to outmaneuver the macro environment.”

The Select portfolio as of March 31 included Trex (TREX), Fortinet (FTNT) and XPO Logistics (XPO). Each had an IBD Composite Rating of 90 or higher.

Generally, CAN SLIM investors consider only stocks with a score of 90 or higher on the 1-to-99 scale.

Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about retirement planning and active mutual fund managers who consistently outperform the market.


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