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2 Consumer Staples Mutual Funds for Your Holiday Shopping

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As the Thanksgiving week ushered in the holiday season, the market started looking to correct itself in a bid to end what has been a tumultuous year on a positive note. December is usually one of the best months of the year in terms of consumer spending and the stock market in general. Customer mood is high on festive spirit and the retail sector, consumer staples and discretionaries benefit from it.

Throughout November, earnings reports emerged from big retail companies, painting a rosier picture for months ahead. This is because they have adjusted their outlook pricing to the fact that inflation has peaked as a result of the stringent policy tightening by the Fed.

The Consumer Price Index (CPI) for October came in at 0.4%, virtually flat with the previous period, while core CPI came in at 0.3%, at half the rate it had increased in September.

Wholesale Inventories increased 0.6%, at a much lower rate than expected and more than half the pace of the 1.4% increase in September. Even as the Fed raised interest rates by 75 bps in their November meeting, FOMC minutes hinted that the central bank was considering bringing down the rate of hikes in the near future.

More recently, Fed Chairman Jerome Powell said in a speech Wednesday that although the peak level of rates will be higher than previously expected as there is a long way to go to curb inflation, the pace of rate hikes is likely to slow from as early as December.

This paves the way for consumer spending to increase, which should benefit sales of not only discretionary products but also staples. In fact, the S&P 500 Consumer Staples Select Sector SPDR had advanced 9% in October, especially in a year when it had receded 4%.

A record number of holiday shoppers, 196.7 million, hit the stores to seek out deals from Thanksgiving Day to Cyber Monday, according to a survey by the National Retail Federation ("NRF"), which said on Tuesday that sales for the overall holiday shopping season are in line to meet its forecast. The NRF expects that holiday sales will rise by 6% to 8% from last year, even as some of the increase may be credited to elevated prices because of the four-decade-high inflation.

It will thus be prudent for an investor to look to invest in consumer staples now, in a year when it has not done as bad as some of the other broader sectors because of its relatively defensive nature, and at a time when it is showing signs of a big rebound. Especially with clear signals emerging from the Fed that the rapid pace of rate hikes will now slow down, consumers are likely to have further money to spend at their disposal, thereby sending the sector further north.

Hence, with the holiday season knocking at the door, astute investors should invest in mutual funds focused on consumer staples at present. Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

We have thus selected two such mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy), 2 (Buy), have positive three-year and five-year annualized returns, minimum initial investments within $5000 and carry a low expense ratio.

Fidelity Select Consumer Staples (FDFAX - Free Report) seeks capital appreciation. FDFAX normally invests the majority of its assets in common stocks of companies principally engaged in the manufacture and distribution of goods and services to consumers both domestically and internationally. Dividends and capital gains are declared in April and December every year.

As of May 2022, the top three holdings for FDFAX are 15.3% in Coca Cola, 13.4% in Procter & Gamble and 7.1% in Walmart.

FDFAX’s 3-year and 5-year annualized returns are 8.5% and 7.4%, respectively. Its net expense ratio is 0.73% compared to the category average of 0.76%. FDFAX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Fidelity Advisor Consumer Staples Fund (FDIGX - Free Report) invests the majority of its assets in securities of companies principally engaged in the manufacture, sale, or distribution of consumer staples. FDIGX 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.

As of May 2022, the top three holdings for FDGIX are 15.3% in Coca Cola, 13.4% in Procter & Gamble and 7.1% in Walmart.

FDIGX’s 3-year and 5-year annualized returns are 8.5% and 7.4%, respectively. Its net expense ratio is 0.74% compared to the category average of 0.76%. FDIGX has a Zacks Mutual Fund Rank #2.

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