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2 Funds to Buy as Consumer Confidence Hits 18-Year High

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A robust labor market, steadily rising wages and strong household finances resulted in a surge in consumer spending last quarter. Meanwhile, consumer confidence hit an 18-year high in October. Further, clothing and apparels remain the preferred gift items ahead of what is expected to be a record-breaking holiday shopping season.

For the record, apparel spending surged to its best level in the last 13 years last quarter. As the holiday season approaches, retail sales, particularly on clothes, are largely expected to rise further. Under such encouraging conditions, it makes buying mutual funds that invest in leisure, discretionary and transportation companies prudent.

Consumer Confidence at 18-Year High

U.S. consumer confidence soared to its highest in 18 years in October, per the Conference Board, a business research organization. The consumer confidence index climbed to 137.9 from 135.3 in September. Economists had expected the consumer index to slip to 134.9 in the month.

Nonetheless, the key economic indicator that measures attitude on economic prospects registered its best reading since the fall of 2000 and is not too far from the all-time high of 144.7 reached that year.

Apparel Spending Highest Since 2005

Per the Commerce Department’s GDP data released on Oct 26, consumer spending on clothing and footwear rose 11.7% year over year last quarter. This marked its biggest increase since 2005. Moreover, this helped boost consumption of non-durable goods to its fastest pace in about five years. Notably, apparel spending accounts for about 3% of consumer spending.

Such healthy developments indicate that the upcoming holiday season is set to witness record-shattering sales. A robust labor market, higher wages and soaring levels of consumer confidence are encouraging households to spend more.

Retail Sales to Rise Further

Deloitte expects average household spending to increase 25% from last year to $1,536 this holiday season. Further, the National Retail Federation (NRF) forecast on Oct 3 that retail sales in the months on November and December would grow by 4.8% from 2017. This estimate also beats the five-year average of 3.9% in the period.

The NRF also expects that consumers would spend $1,007.24 on average, reflecting an increase of 4.1% from last year. Per a survey, clothing would be the second-most popular gift request this holiday season. For the 12th year on the trot, gift cards remained the most demanded gift request with 60% of the respondents in favor of it. About 53% of those surveyed stated that they preferred to receive clothes as gifts.

2 Best Funds to Buy Now

Given such circumstances, we have highlighted two mutual funds carrying a Zacks Mutual Fund Rank #1 (Strong Buy) that are poised to gain from such 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 to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on 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 Leisure Fund (FDLSX - Free Report) seeks capital appreciation. FDLSX normally invests at least 80% of its assets in common stocks of companies principally engaged in the design, production, or distribution of goods or services in the leisure industries. The fund offers dividends and capital gains twice a year in April and December.

This Sector - Other product has a history of positive total returns for over 10 years. Specifically, the fund has returned 12.6% over the three-year and 12% over the five-year benchmarks. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

FDLSX has an annual expense ratio of 0.77%, which is below the category average of 1.17%.

Fidelity Select Consumer Discretionary Portfolio Fund (FSCPX - Free Report) invests in large-blend companies. The objective of FSCPX is to seek capital appreciation. FSCPX normally invests at least 80% of its assets in common stocks of companies principally engaged in the manufacture and distribution of goods and services to both domestic and international consumers.

This Sector – Other product has a history of positive total returns for over 10 years. Specifically, the fund's returns over the three and five-year benchmarks are 16.5% and 13.7%, respectively. To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.

FSCPX has an annual expense ratio of 0.77%, which is below the category average of 1.17%.

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