Retail sales in the United States climbed for the second consecutive month in March despite consumers grappling with price pressures. Although part of the increase can be attributed to some panic buying ahead of tariffs, the broader retail sector has been making solid efforts to stage a rebound despite the innumerable challenges.

A recent decline in inflation and a temporary pause on the tariffs, coupled with optimism surrounding ongoing trade negotiations with multiple trading partners, has raised hopes that the economy will stabilize in the near term.

Given this scenario, investing in retail and discretionary funds, such as Fidelity Select Retailing Portfolio (FSRPX Quick QuoteFSRPX - Free Report) , Fidelity Select Leisure Portfolio (FDLSX Quick QuoteFDLSX - Free Report) and Fidelity Select Consumer Staples Portfolio (FDFAX Quick QuoteFDFAX - Free Report) , could be a smart move.

Retail Sales Surpass Expectations

The U.S. Commerce Department reported that retail sales jumped a robust 1.4% in March, up from 0.2% in February and surpassing economists’ expectations of a rise of 1.2%. March’s jump is also the strongest monthly gain since January 2023.

On a year-over-year basis, March retail sales grew 4.6%. Excluding autos, related sales rose 0.5% from February, surpassing expectations of a 0.3% rise. The jump in March was driven by sales across a range of sections, including sporting goods, hobby, and music stores, which saw 2.4% growth in sales. Sales at food service and drinking places grew 1.8%, a key indicator of household spending strength.

Consumers are reeling under fears that the broad tariffs announced by President Donald Trump, which will escalate import costs, could weaken the economy’s health and spark geopolitical tension. The announcement of a 25% tariff on imported cars and parts and a 10% general import duty saw $6.2 trillion wiped off from markets in just two days. However, Trump’s 90-day temporary halt on these reciprocal tariffs provided some relief and lifted investor sentiment.

Retail activity picked up sharply in late 2024 after the Federal Reserve started interest rate cuts that boosted consumer spending. The Fed, however, paused its rate cuts in January due to rising inflation. However, inflation slowed in February and declined in March, the first time since May 2020, which has renewed optimism. This trend improves the outlook for the retail sector, as the Fed has indicated that it will resume cutting rates once inflation starts declining sharply again.

3 Best Choices

We have selected three mutual funds with significant exposure to the retail and discretionary sectors. 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 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 5.6% and 16% over the past three and five-year periods, respectively. Fidelity Select Retailing Portfolio fund has a Zacks Mutual Fund Rank #1 and its annual expense ratio is 0.64%, which is lower than the category average.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Fidelity Select Leisure Portfolio fund 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.

Fidelity Select Leisure Portfolio fund has a history of positive total returns for more than 10 years. Specifically, FDLSX has returned nearly 10.1% and 22% over the past three and five-year periods, respectively. FDLSX has a Zacks Mutual Fund Rank #2 and its annual expense ratio is 0.69%, which is lower than the category average.

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 distributing 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 3.8% and 10.8% over the past three and five-year periods, respectively. FDFAX has a Zacks Mutual Fund Rank #2, and its annual expense ratio is 0.68%, which is lower than the category average.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

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