The retail industry has continued to expand despite persistent inflationary pressures. Retail sales exceeded expectations again in September, demonstrating the sector’s resilience even as concerns about an economic slowdown persist. While rising gasoline prices contributed to the increase, consumer demand has remained strong.

Consumer spending remained strong, helping retail sales post healthy growth in August. Against this backdrop, retail and discretionary funds are looking increasingly attractive. Investing in funds such as Fidelity Select Retailing Portfolio (FSRPX Quick QuoteFSRPX - Free Report) and Fidelity Select Consumer Discretionary Portfolio (FSCPX Quick QuoteFSCPX - Free Report) could be a smart move.

Retail Sales Exceed Expectations in September

U.S. retail sales increased 0.8% in September, well above economists’ forecast of 0.3% growth. The latest increase followed a revised 1.3% gain in August, according to data released by the Commerce Department on Thursday.

Retail activity has remained strong this year, with July marking the first monthly decline in sales in five months. Despite the significant contribution from higher gasoline prices in September, the broader sector benefited from sustained consumer demand and steady spending.

Gasoline prices climbed 7.1% during September, while retail sales increased 6.3% from the same month a year earlier. For the July-September period, total sales were up 5.5% compared with the corresponding period last year.

Oil prices have climbed over the past six months amid the Middle East crisis, pushing up the cost of goods. Nevertheless, robust demand has encouraged consumers to maintain relatively strong spending levels despite rising expenses.

According to a Reuters report, market experts expect consumer spending to have increased nearly 3.4% in the third quarter from a year earlier, following a 3.8% rise in the second quarter.

2 Best Choices

We have selected two 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 12.8% and 3.7% 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%.

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 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 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 12.2% and 4.2% 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 0.68%, which is below the category average of 0.93%.

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

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 >>