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3 Consumer Discretionary Funds to Buy as Retail Sales Grow
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Consumer discretionaries have been having a stellar year. Till the end of September, the Consumer Discretionary Select Sector SPDR (XLY) has grown 25.5% year to date. With the unbroken string of interest rate hikes behind us, business has been good. On cue, consumers have spent on discretionaries.
Inflation has the biggest and most far-reaching impact on consumer discretionary. When prices of consumer goods are in a state of continuous increase, people rein in spending on non-essential goods. Even after a recent spike in inflation led by fuel prices, consumer goods have not been hit bad. On the contrary, retail sales have continued to grow in recent months.
The retail sales numbers for September were released in October. Per the Commerce Department, retail sales rose 0.7% to $704.9 billion in September from the previous month, widely surpassing the consensus estimate of 0.3%. The August number was revised up to growth of 0.8% from the previously reported 0.6%.
As we approach the end of the year and the holiday season, the sector is poised to grow even more. The fourth quarter is usually a defensive quarter, even for discretionaries, because at this time of the year, people spend anyway. Investor mood is also generally upbeat. However, with the focus shifting squarely on the Fed’s policy decisions and their impact on the economy, it remains to be seen how activities in the sector play out.
Meanwhile, astute investors should consider mutual funds focused on consumer discretionaries to invest in. If the sector is growing now, it should be booming in December.
We have thus selected three such mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive three-year and five-year annualized returns, and minimum initial investments within $5000, and carry a low expense ratio. Incidentally, all three belong to Fidelity Investments.
Fidelity Select Retailing Portfolio (FSRPX - Free Report) normally invests the majority of its assets in common stocks of companies principally engaged in merchandising finished goods and services primarily to individual consumers. FSRPX 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 2023, the top three holdings for FSRPX are 27.3% in Amazon, 10.5% in Home Depot and 6.7% in TJX. Boris Shepov has been one of the lead managers for FSRPX since May 2018.
FSRPX’s 3-year and 5-year annualized returns are 2% and 6.8%, respectively. Its net expense ratio is 0.72% compared to the category average of 0.79%. FSRPX has a Zacks Mutual Fund Rank #1. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Fidelity Select Consumer Discretionary (FSCPX - Free Report) invests the majority of its assets in common stocks of companies principally engaged in the manufacture or distribution of consumer discretionaries. FSCPX 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 2023, the top three holdings for FSCPX are 24.9% in Amazon, 12.8% in Tesla and 4.8% in Home Depot. Jordan Michaels has been one of the lead managers for FSCPX since July 2022.
FSCPX’s 3-year and 5-year annualized returns are 3% and 6.7%, respectively. Its net expense ratio is 0.76% compared to the category average of 0.79%. FSCPX has a Zacks Mutual Fund Rank #2.
Fidelity Select Leisure (FDLSX - Free Report) 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.
As of May 2023, the top three holdings for FDLSX are 18% in McDonald’s, 10.2% in Booking Holdings and 7.5% in Hilton Worldwide. Kevin Francfort has been one of the lead managers for FDLSX since September 2022.
FDLSX’s 3-year and 5-year annualized returns are 12.2% and 10.1%, respectively. Its net expense ratio is 0.74% compared to the category average of 0.79%. FDLSX has a Zacks Mutual Fund Rank #1.
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3 Consumer Discretionary Funds to Buy as Retail Sales Grow
Consumer discretionaries have been having a stellar year. Till the end of September, the Consumer Discretionary Select Sector SPDR (XLY) has grown 25.5% year to date. With the unbroken string of interest rate hikes behind us, business has been good. On cue, consumers have spent on discretionaries.
Inflation has the biggest and most far-reaching impact on consumer discretionary. When prices of consumer goods are in a state of continuous increase, people rein in spending on non-essential goods. Even after a recent spike in inflation led by fuel prices, consumer goods have not been hit bad. On the contrary, retail sales have continued to grow in recent months.
The retail sales numbers for September were released in October. Per the Commerce Department, retail sales rose 0.7% to $704.9 billion in September from the previous month, widely surpassing the consensus estimate of 0.3%. The August number was revised up to growth of 0.8% from the previously reported 0.6%.
As we approach the end of the year and the holiday season, the sector is poised to grow even more. The fourth quarter is usually a defensive quarter, even for discretionaries, because at this time of the year, people spend anyway. Investor mood is also generally upbeat. However, with the focus shifting squarely on the Fed’s policy decisions and their impact on the economy, it remains to be seen how activities in the sector play out.
Meanwhile, astute investors should consider mutual funds focused on consumer discretionaries to invest in. If the sector is growing now, it should be booming in December.
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 three such mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive three-year and five-year annualized returns, and minimum initial investments within $5000, and carry a low expense ratio. Incidentally, all three belong to Fidelity Investments.
Fidelity Select Retailing Portfolio (FSRPX - Free Report) normally invests the majority of its assets in common stocks of companies principally engaged in merchandising finished goods and services primarily to individual consumers. FSRPX 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 2023, the top three holdings for FSRPX are 27.3% in Amazon, 10.5% in Home Depot and 6.7% in TJX. Boris Shepov has been one of the lead managers for FSRPX since May 2018.
FSRPX’s 3-year and 5-year annualized returns are 2% and 6.8%, respectively. Its net expense ratio is 0.72% compared to the category average of 0.79%. FSRPX has a Zacks Mutual Fund Rank #1. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Fidelity Select Consumer Discretionary (FSCPX - Free Report) invests the majority of its assets in common stocks of companies principally engaged in the manufacture or distribution of consumer discretionaries. FSCPX 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 2023, the top three holdings for FSCPX are 24.9% in Amazon, 12.8% in Tesla and 4.8% in Home Depot. Jordan Michaels has been one of the lead managers for FSCPX since July 2022.
FSCPX’s 3-year and 5-year annualized returns are 3% and 6.7%, respectively. Its net expense ratio is 0.76% compared to the category average of 0.79%. FSCPX has a Zacks Mutual Fund Rank #2.
Fidelity Select Leisure (FDLSX - Free Report) 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.
As of May 2023, the top three holdings for FDLSX are 18% in McDonald’s, 10.2% in Booking Holdings and 7.5% in Hilton Worldwide. Kevin Francfort has been one of the lead managers for FDLSX since September 2022.
FDLSX’s 3-year and 5-year annualized returns are 12.2% and 10.1%, respectively. Its net expense ratio is 0.74% compared to the category average of 0.79%. FDLSX has a Zacks Mutual Fund Rank #1.
Want key mutual fund info delivered straight to your inbox?
Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>