3 Mutual Funds to Gain From Jump in Retail Sales
The retail sector has struggled over the past year but is trying to make a solid comeback as inflationary and price pressure ease. Sales have been growing over the past couple of months and the sector is expected to get a further boost from the Federal Reserve’s jumbo rate cut announced on Wednesday.
Investing in large-cap growth funds will thus be a prudent choice to earn profits in the near term. Three such funds are Fidelity Select Retailing Portfolio FSRPX, Fidelity Select Consumer Staples Portfolio FDFAX and Fidelity Select Leisure Portfolio FDLSX.
Retail Sales Grow
The Commerce Department reported on Tuesday that retail sales grew 0.1% in August, after increasing 1.1% in July, the largest increase in 18 months.
The July numbers also surpassed analysts' expectations of a 0.2% decline in sales. On a year-over-year basis, retail sales grew 2.1% in August. Online retail sales showed a strong recovery, rising 1.4% after a 0.4% decline in the previous month.
Sales in stores focused on sporting goods, hobbies, musical instruments, and books went up by 0.3%, while sales at building material and garden equipment stores increased 0.1%. Sales from miscellaneous retailers rose 1.7%.
The retail sector has put up a solid fight over the past year amid growing costs of essentials. Also, consumers have continued to spend freely as the average paychecks have increased substantially since the pandemic.
Fed’s Rate Cut to Boost Retail Stocks
The Federal Reserve announced a 50-basis point rate cut on Wednesday, which was in line with expectations. This is the biggest rate cut since 2008 and the first since March 2020.
Market participants were confident that the Fed would cut interest rates by 25 basis points. However, the odds of a 50-basis-point rate cut increased over the past couple of weeks following the release of soft economic data.
The half a percentage point rate cut is aimed at helping the cooling labor market. It is a substantial cut and is expected to help the broader economy and the retail sector, allowing consumers to spend more freely. The Fed fund rate now ranges between 4.75% and 5.00%, the lowest level since April 2023.
Also, the Federal Reserve's updated dot-plot suggests that the Fed funds rate will reach 4.25-4.50% by the end of the year. A one-percentage-point cut is expected in 2025, followed by another half-point reduction in 2026, bringing the rate down to a final range of 2.75-3%.
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 0.6% and 12.5% over the past three and five-year periods, respectively. Fidelity Select Retailing Portfolio fund has a Zacks Mutual Fund Rank #1 and its annual expense ratio is lower than the category average.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Fidelity Select Consumer Staples Portfolio fund aims for capital growth. FDFAX invests the majority of its assets in securities of companies primarily engaged in manufacturing, marketing, or distribution of consumer staples products. Fidelity Select Consumer Staples Portfolio fund invests in both U.S. and non-U.S. issuers.
Fidelity Select Consumer Staples Portfolio has a history of positive total returns for more than 10 years. Specifically, FDFAX has returned 5.8% and 9.1% over the past three and five-year periods, respectively. FDFAX has a Zacks Mutual Fund Rank #2 and its annual expense ratio is lower than the category average.
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 8.4% and 11.5% over the past three and five-year periods, respectively. FDLSX has a Zacks Mutual Fund Rank #2 and its annual expense ratio is lower than the category average.
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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