Americans continue to splurge despite the spread of the Delta variant in August, pushing retail sales up by 0.7%, after a downwardly revised decline of 1.8% in July. The U.S. Census Bureau reported on Sep 16 that retail and food services sales are now 15% higher than the same period last year.

Clothing and clothing accessories stores witnessed a 38.8% rise in sales, with sales advancing in almost every major retail category. In fact, retails sales were much stronger in August, on a 1.8% rise, excluding auto sales. A shortage of new cars and trucks due to chip scarcity continues to plague the market, affecting sales at auto dealers.

Meanwhile, high inflation continues to bother consumers, curtailing consumers’ current spending when compared to spring. However, Americans are comfortably spending on services they avoided during the pandemic like dining out, hotel rentals, movies and theater tickets, airfare, etc, compared to the year-ago period. Although rise in new coronavirus cases slowed demand for the aforementioned services and sales at restaurants were flat last month.

Sales across groceries, home centers, gas stations and home furnishings stores continued to rise last month, while sales of big-box electronics retailers, especially those selling hobby items and sports equipment, slipped.

August’s retail sales not only outpaced the consensus estimate of a 0.9% decline but also highlighted that Americans are willing to spend and have an appetite for big budget vacations as well as new cars and trucks. Additionally, the University of Michigan on Sep 17 reported that its preliminary reading for the index of consumer sentiment rebounded to 71 in September, after a steep decline of nearly 9 points in August.

With the holiday season approaching, Americans are expected to continue to spend elaborately, especially on clothes, electronics and jewelry. Per Mastercard SpendingPulse forecast, holiday retail sales are expected to rise 7.4% from a year earlier. Bain and Deloitte also forecast sales growth between 7% and 9%.

Big brands like Walmart have already started hiring freight handlers and lift drivers for the holiday season and beyond, and plan to hire 20,000 supply chain employees. Home Depot has reported the selling out of Halloween decorations, which were released early this year. This signals at higher sales of Christmas decorations this year. 

3 Fund Picks

Given the rebound in retail sales in August, we are optimistic that the trend will continue for the rest of the year, especially during the holiday season. Hence, we have shortlisted three mutual funds that are poised to grow and carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging one and three-year returns. Additionally, the minimum initial investment is within $5000.

We expect these funds to outperform peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also on 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 (FSRPX Quick QuoteFSRPX - Free Report) fund aims for capital appreciation. This non-diversified fund invests a large portion of its assets in the common stock of companies engaged in merchandising finished goods and services, primarily to individual consumers.

This Zacks Sector-Other product has a history of positive total returns for more than 10 years. Specifically, FSRPX has returned nearly 21% and nearly 23% over the past three and five-year period, respectively. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSRPX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.73%, which is below the category average of 0.79%.

Fidelity Select Leisure Portfolio (FDLSX Quick QuoteFDLSX - Free Report) fund aims for capital appreciation. This non-diversified fund invests majority of assets in common stocks of companies, principally engaged in the design, production, or distribution of goods or services in the leisure industries.

This Zacks Sector-Other product has a history of positive total returns for more than 10 years. Specifically, FDLSX has three and five-year return of 16.6% and 16.5%, respectively. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FDLSX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.77%, which is below the category average of 0.79%.

Fidelity Select Consumer Staples Portfolio (FDFAX Quick QuoteFDFAX - Free Report) fund aims for capital growth. It invests majority of assets in securities of companies primarily engaged in manufacturing, marketing or distribution of consumer staples products. The non-diversified fund invests in both U.S. and non-U.S. issuers.

This Zacks sector – Other product has a history of positive total returns for more than 10 years. Specifically, FDFAX has returned 12.7% and 7.6% over the past three and five years, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FDFAX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.75% versus the category average of 0.76%.

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