The retail sector has been hit hard by high commodity prices but has been still putting up a solid fight. This has seen sales rise steadily over the past few months. In June, sales continued to grow, driven by solid consumer spending.

The Commerce Department said on Jul 18 that retail sales rose 0.2% in June. The jump in retail sales came as inflation started showing signs of cooling. Given this situation, it would be prudent to invest in retail and consumer discretionary funds like Fidelity Select Consumer Staples Portfolio (FDFAX Quick QuoteFDFAX - Free Report) , Fidelity Select Retailing Portfolio (FSRPX Quick QuoteFSRPX - Free Report) and Fidelity Select Consumer Discretionary (FSCPX Quick QuoteFSCPX - Free Report) .

Retail Sales Rise

Solid consumer spending helped retail sales grow in June. E-commerce, which has been playing an important role in driving overall retail, increased 1.9%, the highest in the past six months. Sales at auto dealerships increased 0.3%.

Sales at furniture stores increased 1.4%, while electronics and appliances sales grew 1.1%. Apparel sales jumped a solid 0.6%.  

The June retail sales data came as fresh readings on the consumer price index (CPI) and producer price index (PPI) hinted at easing inflation. CPI rose 3% year over in June after climbing 4% in May, its lowest level since March 2021.

Also, PPI increased just 0.2% year over year in June. The Fed has hiked interest rates by 500 basis points since March 2022 in its bid to combat 40-year-high inflation. The aggressive monetary tightening stance seems to be finally taking effect, as inflation has slowed substantially over the past year.

The Fed has said that it will still need to increase interest rates by 25 basis points each on at least two more occasions this year as inflation is still elevated. However, the latest CPI and PPI reading raised hopes among market participants the Fed might soon end its monetary tightening policy.

This bodes well for the retail and discretionary sector as lower interest rates will allow people to spend more freely.

3 Best Choices

We have selected three mutual funds with significant exposure to the retail and discretionary sector. 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 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 12.2% and 9.8% 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 0.74%, which is below 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 fund has a history of positive total returns for more than 10 years. Specifically, FSRPX has returned nearly 7.3% and nearly 9.2% over the past three and five-year periods, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSRPX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.72%, which is below the category average of 0.79%.

Fidelity Select Consumer Discretionary fund usually invests in large blend companies. The objective of FSCPX is to seek capital appreciation. Fidelity Select Consumer Discretionary fund normally invests at least 80% 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.

Fidelity Select Consumer Discretionary fund has a history of positive total returns for more than 10 years. Specifically, FSCPX has returned nearly 9.4% and nearly 9.1% over the past three and five-year periods, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSCPX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.76%, which is below the category average of 0.79%.

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