The retail sector is making every possible effort to withstand inflationary pressures and has put up a solid fight so far. Retail sales are making a steady but solid rebound and the sector is poised to grow further as inflationary pressures ease in the coming months.

Also, the Consumer Discretionary Select Sector SPDR (XLY) has gained 29.7% year to date, which shows the underlying strength in the sector.

Given this situation, it would be wise to invest in retail and consumer discretionary funds like Fidelity Select Retailing Portfolio FSRPX, Fidelity Select Leisure Portfolio FDLSX and Fidelity Select Consumer Discretionary Portfolio FSCPX.

Retail Sales Soar

The Commerce Department said on Sep 14 that retail sales rose an impressive 0.6% in August, totaling $697.6 billion, after increasing 0.5% in July and surpassing the consensus estimate of a rise of 0.1%. Year over year, retail sales jumped a solid 2.5% in August.

Total sales for the June through August 2023 period rose 2.2% year over year. Sales were primarily driven by receipts at gas stations as fuel prices soared. Besides, consumers spent on clothing and accessories, and on dining out.

Apparel sales rose 0.9% in August, while receipts at gas stations increased 5.2%.

Consumers are spending confidently despite higher prices and prevailing inflationary pressure, which has been aiding retailers. Over the past year, inflation has significantly declined, having more than halved from its peak of 9.1% in June 2022.

The steady increase in retail sales further reinforces the notion that the economy is on a strong footing. A steady decline in inflation has raised optimism, with expectations that the Federal Reserve will likely keep interest rates unchanged during its September FOMC meeting, which began on Tuesday.

Lower interest rates definitely bode well for the retail sector.

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.

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 3.1% and 8.3% 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 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 14.3% and 11.5% 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.

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 4.6% and 8.2% 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.
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