3 Must-Buy Funds as Retail Sales Make Solid Turnaround
The retail sector is staging a dramatic turnaround as sales continue to grow on higher demand and easing inflationary pressures. The sector is poised to grow further as the all-important holiday season is approaching, which is likely to boost sales this time too.
Given this situation, it would be wise to invest in retail and consumer discretionary funds like Fidelity Select Retailing Portfolio FSRPX, Fidelity Select Consumer Discretionary Portfolio FSCPX and Fidelity Select Leisure Portfolio FDLSX.
Retail Sales Jump Again
The Commerce Department said that retail sales totaled $704.9 billion in September, increasing 0.7% after rising 0.8% in August. The September figures also surpassed the consensus estimate of a rise of 0.3%.
Year over year, retail sales increased a solid 3.8% in September. Sales were driven mainly by higher oil prices, which saw a 0.9% jump in receipts at gas stations.
Excluding autos, retail sales jumped 0.6%. Core retail sales, which excludes sales at auto dealers, mobile homes, tobacco stores and gas stations, grew 0.6%. E-commerce sales rose 1% in September after increasing 0.4% in the prior month.
Since March 2022, the Federal Reserve has raised interest rates by a total of 525 basis points, bringing its benchmark policy rate into the range of 5.25-5.5%. This has contributed to a significant decline in inflation over the past few months after reaching a peak of 9.1% in June 2022.
The Federal Reserve is planning to go for another 25-basis point interest rate hike by the end of this year, followed by two rate cuts in 2024. Moreover, it is expected that higher interest rates will be in place for a longer duration than previously anticipated.
The decision to hike rates is influenced, in part, by factors such as retail sales figures. It appears that the retail sector is showing signs of a strong recovery despite ongoing pressures and challenges, as consumer spending continues to be high. Also, the Consumer Discretionary Select Sector SPDR (XLY) has gained 22.4% year to date, which shows the continued demand for consumer goods.
The September retail sales data suggests solid economic growth during the third quarter. Consumer spending has been robust, bolstered by a tight labor market that saw the creation of 336,000 jobs in September. Additionally, GDP estimates for the third quarter are as high as 5.1%, indicating a positive economic trajectory.
3 Best Choices
We have selected three mutual funds with significant exposure to the retail and discretionary sectors. The funds carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) and are poised to gain from the above factors. Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.
We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors in identifying potential winners and losers. Unlike most fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also 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 Retailing Portfolio fund aims for capital appreciation. FSRPX invests a large portion of its assets in the common stock of companies engaged in merchandising finished goods and services, primarily to individual consumers.
Fidelity Select Retailing Portfolio fund has a history of positive total returns for more than 10 years. Specifically, FSRPX has returned nearly 2% and 6.8% over the past three and five-year periods, respectively. Fidelity Select Retailing Portfolio fund has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.72%, which is below the category average of 0.79%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Fidelity Select Consumer DiscretionaryPortfolio fund invests the majority of its assets in common stocks of companies principally engaged in the manufacture or distribution of consumer discretionaries. FSCPX uses fundamental analysis of factors such as each issuer's financial condition and industry position, as well as market and economic conditions, for its decisions.
Fidelity Select Consumer Discretionary Portfolio fund has a history of positive total returns for more than 10 years. Specifically, FSCPX has returned nearly 3% and 6.7% over the past three and five-year periods, respectively. Fidelity Select Consumer Discretionary Portfolio fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.76%, which is below the category average of 0.79%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Fidelity Select Leisure Portfolio fund invests the majority of its assets in common stocks of companies principally engaged in the design, production, or distribution of goods or services in the leisure industries. FDLSX uses fundamental analysis of factors such as each issuer's financial condition and industry position, as well as market and economic conditions, for its decisions.
Fidelity Select Leisure & Entertainment fund has a history of positive total returns for more than 10 years. Specifically, FDLSX has returned nearly 12.2% and 10.1% over the past three and five-year periods, respectively. FDLSX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.74%, which is below the category average of 0.79%.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
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