The recent decision by the Federal Reserve to keep the interest rate unchanged for the third time in a row indicates confidence in the stability of the economy. Given signs of decreasing inflation, all members of the Federal Open Market Committee agreed to keep the borrowing rate within a targeted range of 5.25% to 5.5%. In November, the year-over-year increase in the Consumer Price Index (CPI) slowed down to 3.1%, marking a decrease from October's 3.2% rise. The Core CPI, excluding the volatile energy and food prices, experienced a 4% year-over-year advancement in November, with a modest 0.3% increase month over month.

This choice has created investment opportunities in sectors related to consumer goods and services that tend to thrive during stable economic periods with lower inflation.

The consumer discretionary sector includes a range of industries such as retail, entertainment, leisure and automotive. As inflation cools down, consumer spending should remain strong. Consumers will have purchasing power. These types of stocks are well positioned when economic conditions are stable since they follow patterns. Moreover, continuous innovation within this sector enables such stocks to adapt effectively to changing market dynamics. As inflationary pressures ease off, companies in this industry may find relief from rising input costs, thereby contributing to expansion in profit margins.

Therefore, it is more likely that with decreasing inflation rates, the consumer discretionary industry as a whole will perform well and offer rewards for investors in the coming days.

Thus, from an investment standpoint, we have selected three consumer discretionary mutual funds that are expected to give a positive return amid easing inflation. 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).

These funds, by the way, have given impressive 3-year and 5-year returns as well, boast a Zacks Mutual Fund Rank #1 (Strong Buy), offer a minimum initial investment of $5,000 and carry a low expense ratio compared to the category average.

Fidelity Select Leisure & Entertainment (FDLSX Quick QuoteFDLSX - Free Report) invests most of its net assets in common stocks of domestic and foreign companies that are principally engaged in the design, production, or distribution of goods or services in the leisure industries. FDLSX advisors choose to invest in stocks based on fundamental analysis factors such as the issuer's financial condition, industry position as well as market and economic conditions.

Kevin Francfort has been the lead manager of FDLSX since Sep 7, 2022, and most of the fund’s holdings were in companies like McDonald’s Corporation (16.7%), Booking Holdings (11.7%) and Hilton Worldwide (8%) as of Aug 31, 2023.

FDLSX’s 3-year and 5-year returns are 9.5% and 11.6%, respectively. The annual expense ratio is 0.73% compared to the category average of 0.79%. FDLSX 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 Retailing Portfolio (FSRPX Quick QuoteFSRPX - Free Report) seeks capital appreciation by investing in common stocks of companies principally engaged in merchandising finished goods and services primarily to individual consumers.

Boris Shepov has been the lead manager of FSRPX since May 15, 2018. Most of the fund's holdings were in companies like Amazon (25.2%), Home Depot Inc (7.1%) and Lowe's Companies Inc (6.6%) as of Aug 31, 2023.

FSRPX's 3-year and 5-year returns are 1.3% and 11%, respectively. The annual expense ratio is 0.72% compared to the category average of 0.79%. FSRPX has a Zacks Mutual Fund Rank #1.

Select Consumer Discretionary Portfolio (FSCPX Quick QuoteFSCPX - Free Report) invests the majority of its assets in common stocks of companies principally engaged in the manufacture or distribution of consumer discretionary. 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.

Jordan Michaels has been the lead manager of FSCPX since Jul 11, 2022. Most of the fund's holdings were in companies like Amazon (24.1%), Tesla, Inc. (14.2%) and Lowe's Companies Inc (4.9%) as of Aug 31, 2023.

FSCPX's 3-year and 5-year returns are 2.6% and 10%, respectively. The annual expense ratio is 0.75% compared to the category average of 0.79%. FSCPX has a Zacks Mutual Fund Rank #2.

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