Best Mutual Funds to Capitalize on Manufacturing Sector Growth in 2026

The U.S. manufacturing landscape is undergoing a meaningful transformation. After more than three years of weak performance, the sector is finally showing genuine signs of recovery. Recent economic indicators suggest this rebound could create meaningful investment opportunities, particularly for those seeking exposure through mutual funds that emphasize manufacturing and related industries. For investors evaluating their best mutual funds options, understanding this economic shift is essential to making informed decisions about portfolio positioning.

Economic Tailwinds Support Manufacturing Recovery

The latest Manufacturing Purchasing Managers Index from the Institute of Supply Management reveals a dramatic turnaround. The PMI climbed to 52.6 in January, a substantial jump from 47.9 in December and well ahead of expectations for a rise to just 48.5. This represents the strongest reading since 2022 and signals the sector’s first expansion following a year of contraction.

Several factors drove this acceleration. New orders saw particularly strong growth, with the New Orders Index jumping to 57.1 from 47.4 in the prior month—its highest level since February 2022. Meanwhile, production activity strengthened considerably, with the Production Index rising to 55.9 from 50.7 in December, marking the strongest reading in approximately four years.

These improvements don’t occur in isolation. The Federal Reserve’s 75-basis-point rate reductions last year have lowered borrowing costs, while inflation has moderated over the past two quarters. These developments have reduced price pressures that previously constrained demand. Looking ahead, Fed officials maintained interest rates in the 3.5% to 3.75% range during their January meeting but signaled openness to additional cuts if price pressures continue cooling. Economists currently project inflation could decline to 2.4% by the end of 2026, with economic growth expected to accelerate to 2.3% this year.

Why Manufacturing Exposure Matters for Your Portfolio

Manufacturing remains a critical economic bellwether. Expansion in this sector typically precedes broader economic acceleration, suggesting that improvements now could signal stronger overall growth ahead. For investors seeking best mutual funds with meaningful exposure to these opportunities, two key considerations emerge.

First, mutual funds offer structural advantages over direct stock ownership. Lower transaction costs, built-in diversification, and the absence of per-trade commissions make them attractive vehicles for capturing sector-wide gains without the expense associated with individual stock selection.

Second, the timing aligns with fundamental improvements. As manufacturing activity strengthens, companies across related industries—from automotive suppliers to defense contractors—stand to benefit from increased production and capital investment. This environment historically supports equity valuations in these segments.

Two Strategic Mutual Fund Picks

The investment landscape currently presents attractive opportunities through funds carrying Zacks Mutual Fund Rank ratings of #1 (Strong Buy) or #2 (Buy), each offering compelling three and five-year performance records and accessible minimum initial investment thresholds below $5,000.

Fidelity Select Automotive Portfolio (FSAVX) targets capital appreciation by investing predominantly in common stocks of companies engaged in automobile manufacturing, truck production, specialty vehicles, component suppliers, and tire manufacturing. The fund has maintained positive total returns for over a decade, delivering 17.9% over the past three years and 5.8% over five years. It carries a Zacks Mutual Fund Rank #2 rating with an expense ratio of 0.79%, below the category average.

Fidelity Select Defense & Aerospace Portfolio (FSDAX) provides exposure to companies primarily involved in research, manufacturing, and distribution of defense and aerospace products and services. This fund emphasizes global diversification, maintaining holdings in both U.S. and international companies. FSDAX has posted particularly strong returns—26.4% over three years and 17.8% over five years—while maintaining a Zacks Mutual Fund Rank #2 designation. Its annual expense ratio of 0.64% remains notably lower than category peers.

Comparing Performance and Costs

When evaluating best mutual funds for manufacturing-focused investment strategies, the comparison between FSAVX and FSDAX reveals complementary strengths. The Automotive Portfolio emphasizes a single critical manufacturing segment—vehicles and components—where recent demand improvements have been particularly pronounced. The Defense & Aerospace Portfolio broadens exposure across multiple advanced manufacturing industries, offering different risk-return characteristics.

Both funds demonstrate strong long-term track records extending beyond ten years and feature expense ratios below category averages—an important consideration for long-term wealth accumulation. The three-year performance differential, with FSDAX substantially outpacing FSAVX, reflects the relative strength of defense and aerospace stocks during that period, though both categories stand to benefit from current manufacturing momentum.

As economic conditions continue improving and manufacturing activity accelerates, investors evaluating best mutual funds for manufacturing exposure should consider how these complementary strategies align with their broader portfolio objectives and time horizons.