Soaring inflation has compelled the Fed to adopt an aggressive rate hike stance, with the central bank already raising interest rates five times this year. The Fed’s aggressive rate hike policy has now raised concerns of a deep economic crisis. However, even then, consumer confidence is high as people feel that aggressive rate hikes will help the Fed get control over soaring inflation in the near term.
Also, retail sales grew unexpectedly in August, indicating that people are still spending as demand for consumer goods continues to grow. Moreover, a strong labor market has given people confidence in the economy’s future. Given this scenario, people can bet on some top-ranked retail and consumer discretionary funds like
Fidelity Select Consumer Staples Portfolio ( FDFAX Quick Quote FDFAX - Free Report) , Fidelity Select Retailing Portfolio ( FSRPX Quick Quote FSRPX - Free Report) and Fidelity Select Consumer Staples Portfolio ( FDCGX Quick Quote FDCGX - Free Report) . Consumer Confidence Rises
The Conference Board said on Sep 27 that the consumer confidence index climbed to 108.0 in September from 103.6 in August and beat the consensus estimate of 10.4.5. September’s rise was attributed to a decline in gasoline prices and a strong labor market. Consumer confidence has now increased for two straight months.
The Expectations Index, which is used to gauge consumers' expectations for the next six months of business, income and labor market conditions, jumped to 80.3 in September from 75.8 in August.
This shows that consumers have a great deal of faith in the economy and are optimistic about future price increases. Although inflation is still at multi-year highs, prices have been cooling lately.
The Fed hiked interest rates by 75 basis points on Sep 21. This was the third consecutive time that the Fed increased rates by 75 basis points. However, confidence seems to have rebounded after the Fed gave a clearer picture of its rate hikes plans.
The Fed now plans to raise rates by another 125 basis points by the end of this year. This will take the benchmark interest rate to a midpoint of 4.40% before peaking at 4.60% in 2023.
People now have more faith in the Fed's approach to combating rising inflation. Growing economic optimism appears to have allayed concerns of a recession, a week after the Fed increased interest rates and foresaw an increase in unemployment.
Besides, declining gasoline prices and a strong labor market have raised the confidence level among consumers. Hiring slowed in August, but it is still at a high level. August saw 315,000 jobs being added to the economy. More jobs mean more wages, which is giving people more purchasing power.
Also, retail sales unexpectedly increased 0.4% in August, indicating that there is high demand for goods and people are willing to spend as they still have solid purchasing power. Moreover, the upcoming holiday season is also expected to boost retail sales.
3 Best Choices
We have, thus, selected three mutual funds with significant exposure to the retail and consumer discretionary sector carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) that are poised to gain from such 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 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 Consumer Staples Portfolio fund aims for capital growth. FDFAX invests the majority of 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 9.3% and 6.7% 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% versus the category average of 0.76%.
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 has a history of positive total returns for more than 10 years. Specifically, FSRPX has returned nearly 9.2% and nearly 14% over the past three and five-year periods, 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 Consumer Staples Portfolio fund invests the majority of its assets in securities of companies whose primary business is the production, sale, or distribution of consumer goods. FDCGX makes investments in both domestic and overseas issuers.
Fidelity Select Consumer Staples Portfolio fund has a history of positive total returns for more than 10 years. Specifically, FDCGX has returned nearly 8.2% and 5.6% over the past three and five-year periods, respectively. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds,
please click here.
FDCGX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0%, which is below the category average of 0.76%.
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