A spate of positive economic data released over the past three weeks has alleviated fears of an economic slowdown. Markets made a solid rebound after a panic selloff in early August and closed the month on a high.
On the last trading day of August, fresh economic data showed that both personal income and consumer spending rose in July. Higher income is allowing consumers to spend more lavishly. Given this situation, it would be ideal to invest in retail and discretionary funds like Fidelity Select Retailing Portfolio FSRPX, Fidelity Select Consumer Staples Portfolio FDFAX and Fidelity Select Leisure Portfolio FDLSX.
Personal Income, Consumer Spending Increase
The Commerce Department reported on Aug 30 that consumer spending rose 0.5% in July after increasing 0.3% in the prior month. The jump came in line with expectations.
After adjusting for inflation, consumer spending rose 0.4% in July after increasing 0.3% a month earlier.
Consumers spent aggressively on both goods and services, with the biggest jump seen in spending on motor vehicles and parts. Consumers also spent more on housing and utilities, recreational services and food and beverages.
Higher spending was driven by a jump in personal income, which rose 0.3% in July after a 0.2% increase in June. Wages also increased 0.3% in July after increasing 0.2% in the previous month.
Economy on Solid Ground
A 4.3% jump in the unemployment rate in July ignited fears that the Federal Reserve’s monetary tightening campaign in which it raised interest rates to a 23-year high in the range of 5.25-5.5% may have started taking its toll on the economy and a recession was unavoidable.
However, the fears have alleviated over the past few weeks and people are a lot more confident about the economy’s health.
The solid jump in consumer spending in July indicates that spending continued its momentum from the second quarter. Solid consumer spending helped boost the second-quarter GDP and the U.S. economy grew at a 3% annualized rate.
Consumer spending accounts for more than two-thirds of U.S. economic activity.
Also, the Federal Reserve has said that rate cuts are on the horizon as inflation is showing signs of easing at a steady pace. Lower borrowing rates will further boost consumer spending.
3 Retail, Discretionary Funds to Gain
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 0.8% and 12.4% over the past three and five-year periods, respectively. Fidelity Select Retailing Portfolio fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.71%, which is lower than the category average of 0.99%.
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 4.1% and 8% over the past three and five-year periods, respectively. FDFAX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.71%, which is lower than the category average of 0.94%.
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 7.3% and 10.7% over the past three and five-year periods, respectively. FDLSX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.73%, which is lower than the category average of 0.99%.
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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