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2 Mutual Funds to Boost Your Portfolio on a Solid Jump in Retail Sales

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U.S. retail sales grew in August. The retail sector has held its ground and put up an impressive show despite concerns over a slowing economy, a softening labor market, and persistent inflation.

The jump in August indicates that consumer demand for goods remains robust, with shoppers willing to spend despite price pressures. Given this scenario, investing in retail and consumer discretionary funds would be an ideal opportunity. Two such funds are Fidelity Select Retailing Portfolio (FSRPX - Free Report) and Fidelity Select Leisure Portfolio (FDLSX - Free Report) .

Retail Sales Rise

Retail sales totaled $732 billion in August, reflecting a 0.6% rise from July and surpassing the consensus estimate of a 0.3% increase, according to the Commerce Department. On a year-over-year basis, sales were up 5%, and July’s numbers were revised upward to 0.6%.

While higher prices contributed to higher sales, the primary driver was robust consumer demand across a wide range of products. Auto dealership sales grew 0.5%, sporting goods, musical instruments, and book stores saw a 0.8% increase, clothing stores rose 1%, and food and beverage sales climbed 0.3%. Online sales were up 0.2%, while electronics and appliance stores recorded a 0.3% gain.

Although rising prices continue to keep households under pressure amid economic uncertainty, consumers are spending quite lavishly. August marked the third consecutive month of retail sales growth. Restaurant and bar sales, a key measure of household spending, increased 0.7%, the only service category included in the retail report.

Trade tariffs imposed during President Donald Trump’s administration have contributed to rising prices in recent months, but consumers remain optimistic that the impact will be milder than initially expected due to trade deals with several partners.

The retail sales report was released just a day before the Federal Reserve cut interest rates by 25 basis points, the first rate cut since December 2024. Besides, the Fed also hinted at two more interest rate cuts this year. Lower borrowing costs are expected to benefit both the retail sector and the broader economy.

2 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 16% and 8.4% 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 of 1.04%.

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 the 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 20.4% and 16.3% over the past three and five-year periods, respectively. FDLSX has a Zacks Mutual Fund Rank #1 and its annual expense ratio is 0.69%, which is lower than the category average of 1.04%.

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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