U.S. retail sales increased in June as lower energy prices and a sharp rise in online shopping supported consumer spending. The retail industry has been steadily recovering despite high inflation and geopolitical uncertainty. Even with these headwinds, consumer demand has remained resilient, providing a major boost to the sector.
Given the current environment, retail and discretionary funds are looking increasingly attractive. Investing in funds, such as Fidelity Select Retailing Portfolio (FSRPX – Free Report) , Fidelity Select Consumer Discretionary Portfolio (FSCPX – Free Report) and Fidelity Select Consumer Staples Portfolio (FDFAX – Free Report) could be a smart move.
Retail Sales Continue to Climb
Retail sales rose 0.2% in June following a 1% increase in May, matching economists’ forecasts, the Commerce Department reported on Thursday. Compared with the same month a year earlier, retail sales were up 6.7%.
Although the monthly increase was the slowest in five months, the retail sector maintained solid momentum. A key factor was a decline in oil prices after tensions between the United States and Iran eased in mid-June. As a result, receipts at gas stations fell 5.3% in June after rising 2.6% in May.
Receipts at auto dealerships climbed 1.9% during the month, while online retail sales also advanced 1.9%, supported by strong Amazon Prime Day demand.
Sales at electronics and appliance stores increased 0.8% in June. Meanwhile, receipts at sporting goods, hobby, musical instrument and book stores posted a robust 1.3% gain.
Although elevated tariffs have pushed prices higher and strained household budgets, higher incomes have helped consumers maintain spending. Larger tax refunds this year have also given shoppers additional purchasing power.
The U.S. economy expanded 2.1% in the first quarter. Inflation also cooled significantly in June after rising for three consecutive months. The consumer price index (CPI) declined 0.4% month over month, outperforming analysts’ expectations for a 0.2% decline. On an annual basis, CPI eased to 3.5%, lower than the consensus estimate of 3.8%.
The sharper-than-expected decline in inflation has fueled expectations that the Federal Reserve may delay any decision to raise interest rates. A lower-rate environment would likely provide an additional tailwind 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 (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 13.2% and 3.6% 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 0.64%.
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 Portfolio fund invests the majority of its assets in common stocks of companies principally engaged in the manufacture or distribution of consumer discretionary goods. FSCPX uses the 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 13.9% and 5.6% over the past three and five-year periods, respectively. Fidelity Select Consumer Discretionary Portfolio fund has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.68%, which is below the category average of 92%.
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 distributing consumer staples. Fidelity Select Consumer Staples Portfolio fund invests in both U.S. and non-U.S. issuers.
Fidelity Select Consumer Staples Portfolio fund has a history of positive total returns for more than 10 years. Specifically, FDFAX has returned 4.3% and 4.5% over the past three and five-year periods, respectively. FDFAX has a Zacks Mutual Fund Rank #2, and its annual expense ratio is 0.68%, which is lower than the category average of 0.91%.
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