The consumer discretionary sector has been having a blockbuster 2023. Till the end of July, the Consumer Discretionary Select Sector SPDR (XLY) has grown 35.2% year to date, advancing 2.3% in July.

The regional banking crisis has apparently been averted, and debt-ceiling negotiations between the two major political parties are resolved. Most importantly, the unbroken string of interest rate hikes is behind us, and business has been good. On cue, consumers have spent on discretionaries.

Inflation has the biggest and most far-reaching impact on consumer discretionary. When prices of consumer goods are in a state of continuous increase, people rein in spending on non-essential goods. So, with headline consumer price inflation definitively slowing down in recent months and the Fed finally announcing a much-anticipated rate-hike pause in its June meeting, things are rosier for the discretionary sector, which has already done pretty well throughout the year.

This has also been reflected by the retail sales numbers for July released in August. Per the Commerce Department, retail sales rose 0.7% to $696.4 billion in July from the previous month, widely surpassing the consensus estimates of 0.4%. It’s also the best monthly gain since January 2023. Earlier, the June number was reported as a 0.2% rise.

As we approach the end of the year and the holiday season, astute investors should consider mutual funds focused on consumer discretionaries to invest in. If the sector is growing now, it should be booming in December.

Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases.

We have thus selected three such mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive three-year and five-year annualized returns, and minimum initial investments within $5000, and carry a low expense ratio. Incidentally, all three belong to Fidelity Investments.

Fidelity Select Retailing Portfolio FSRPX normally invests the majority of its assets in common stocks of companies principally engaged in merchandising finished goods and services primarily to individual consumers. FSRPX 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.

As of May 2023, the top three holdings for FSRPX are 27.3% in Amazon, 10.5% in Home Depot and 6.7% in TJX. Boris Shepov has been one of the lead managers for FSRPX since May 2018.

FSRPX’s 3-year and 5-year annualized returns are 5.9% and 9.6%, respectively. Its net expense ratio is 0.72% compared to the category average of 0.79%. FSRPX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Fidelity Select Consumer Discretionary FSCPX 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.

As of May 2023, the top three holdings for FSCPX are 24.9% in Amazon, 12.8% in Tesla and 4.8% in Home Depot. Jordan Michaels has been one of the lead managers for FSCPX since July 2022.

FSCPX’s 3-year and 5-year annualized returns are 8.4% and 9.6%, respectively. Its net expense ratio is 0.76% compared to the category average of 0.79%. FSCPX has a Zacks Mutual Fund Rank #1.

Fidelity Select Leisure & Entertainment FDLSX 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.

As of May 2023, the top three holdings for FDLSX are 18% in McDonald’s, 10.2% in Booking Holdings and 7.5% in Hilton Worldwide. Kevin Francfort has been one of the lead managers for FDLSX since September 2022.

FDLSX’s 3-year and 5-year annualized returns are 21% and 12.7%, respectively. Its net expense ratio is 0.74% compared to the category average of 0.79%. FDLSX has a Zacks Mutual Fund Rank #1.
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