Rising inflation and fears of President Donald Trump’s tariff impact on the U.S. economy have unsettled markets. Consumers have lately been cutting down on their spending on discretionary items. This has also led to a decline in consumer confidence.
Despite this decline, retail sales increased in February, offering a glimmer of hope that the economy may not be in as poor a state as feared. The retail industry has demonstrated remarkable resilience, even during periods of high inflation, and is now trying to stage a recovery.
Given these conditions, investing in retail and discretionary funds, such as the Fidelity Select Consumer Staples Portfolio FDFAX, Fidelity Select Retailing Portfolio FSRPX and Fidelity Select Leisure Portfolio FDLSX would be a prudent choice.
Retail Sales Rise in February
The Commerce Department reported that retail sales increased by 0.2% in February. While this fell slightly below the consensus estimate of 0.3%, it marked a significant improvement from January’s 1.2% decline.
Excluding auto sales, retail sales rose 0.3%. Year over year, sales grew 3.1% in February, primarily driven by a 3.1% jump in online sales. E-commerce has been a key driver of overall retail growth in recent years, a trend that has continued into 2025. Sales at health and personal care stores rose 1.7%, while spending on building materials and garden equipment advanced by 0.2%.
Retail Sector Staging Recovery
Economic uncertainty, induced by rising prices and Trump’s harsh tariff policies, has weighed on consumer confidence. However, after the Federal Reserve cut interest rates by a total of 100 basis points, retail sales rebounded in the latter half of 2024.
Despite this recovery, the Fed paused its rate cuts in January due to signs of rising inflation. However, inflation showed signs of easing in February, which is likely to benefit both consumers and the retail sector.
Investors remain uncertain about Trump’s shifting tariff policies. However, as markets are gauging, the tariffs may not be that hard-hitting. Trump said on Monday that the tariffs set to take effect in early April will be less severe than initially anticipated. He added that there would be some "flexibility" in their implementation and that his top trade officials would engage in discussions with their Chinese counterparts next week.
This is likely to bring some relief to consumers. Moreover, if inflation continues to cool, the Federal Reserve is expected to resume rate cuts, which will be a big boost to the retail industry.
3 Best Choices
As a result, we've chosen three funds from the retail and discretionary sectors that are worth buying. These funds have given impressive 5-year and 10-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio.
The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
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 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 9.1% and 5.8% over the past five and 10-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.
To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Fidelity Select Retailing Portfolio fund aims for capital appreciation. FSRPX invests a large portion of its assets in the common stocks 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 15.4% and 14% over the past five and 10-year periods, respectively. Fidelity Select Retailing Portfolio fund has a Zacks Mutual Fund Rank #1 and its annual expense ratio is 0.64%, which 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 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 Leisure Portfolio fund has a history of positive total returns for more than 10 years. Specifically, FDLSX has returned nearly 18% and 12.5% over the past five and 10-year periods, respectively. FDLSX has a Zacks Mutual Fund Rank #2 and its annual expense ratio is 0.69%, which 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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