U.S. retail sales rose for the third consecutive month in April, highlighting the sector’s continued strength. While inflation significantly contributed to the increase in sales during the month, the retail industry has remained remarkably resilient despite rising prices and the prevailing geopolitical uncertainty.

Consumers have continued spending heavily, helping drive overall retail growth. Given the current environment, retail and discretionary funds are looking increasingly attractive for investment. Investing in funds, such as Fidelity Select Retailing Portfolio (FSRPX Quick QuoteFSRPX - Free Report) , Fidelity Select Consumer Staples Portfolio (FDFAX Quick QuoteFDFAX - Free Report) and Fidelity Select Consumer Discretionary Portfolio (FSCPX Quick QuoteFSCPX - Free Report) could be a smart move.

Retail Sales Jump

Retail sales jumped 0.5% in April following a downwardly revised 1.6% gain in March, the Commerce Department reported last week. Compared to a year earlier, retail sales climbed 4.9% in April. Although rising energy prices linked to the ongoing Iran conflict significantly boosted receipts at gas stations, sales improved across nearly all retail categories.

Revenues at gasoline stations rose 2.8% after surging 13.7% in March. Electronics and appliance store sales advanced 1.4%, while nonstore retailers, including online sellers, posted a 1.1% increase.

Gasoline prices have risen sharply since the Iran conflict began, climbing 12.3% in April after nearly a 40% increase in March. Even so, consumers continued spending strongly on discretionary items. Sales at sporting goods, hobby, musical instrument and book stores increased 1.4%, while restaurant receipts edged up 0.6%. Economists often see restaurant spending as a major indicator of household financial health.

Although the Federal Reserve has kept interest rates unchanged this year and inflation has accelerated over the past two months, investors still expect the central bank to resume rate cuts in the second half of the year, a development that could further support the retail sector.

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 16.7% and 4.1% 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 0.63%, 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 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 4.8% 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 of 0.91%.

Fidelity Select Consumer Discretionary Portfolio fund invests the majority of its assets in common stocks of companies principally engaged in the manufacture or distribution of consumer discretionary goods. FSCPX 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 Consumer Discretionary Portfolio fund has a history of positive total returns for more than 10 years. Specifically, FSCPX has returned nearly 18% and 5.3% over the past three and five-year periods, respectively. Fidelity Select Consumer Discretionary Portfolio fund has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.69%, which is below the category average of 92%.

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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