The retail sector has suffered a lot but has been trying to stage a recovery over the past few months. Retailers are now looking forward to the upcoming holiday season, an important shopping window that drives overall retail sales every year. According to the National Retail Federation (NRF), holiday retail sales are projected to grow at an impressive pace this year.
Given this positive outlook, investing in retail and discretionary funds like Fidelity Select Retailing Portfolio FSRPX, Fidelity Select Leisure Portfolio FDLSX and Fidelity Select Consumer Staples Portfolio FDFAX could be a smart move.
Holiday Season to Boost Retail Sales
Holiday retail sales are projected to increase by 3.5% year over year in 2024, according to the NRF. Although this represents the slowest growth in six years, sales are projected to reach $979.5-$989 billion. This bodes well for millions of retailers that have struggled for most of the year.
Last year, holiday sales rose by 3.9%, totaling $955.6 billion. Retailers are expected to hire between 40,000 and 50,000 seasonal workers this holiday season. Online and other non-store sales are forecast to jump by 9%, hitting $297.9 billion compared to $273.3 billion recorded in 2023.
A separate forecast from Adobe Analytics suggests that online sales will jump 8.4%, totaling $240.8 billion this holiday season, up from $221.8 billion in 2023, when online sales grew 4.9%. Mobile shopping is projected to set a new record, hitting $128.1 billion, a 12.8% rise year over year.
Retail Sector on an Upswing
According to the Commerce Department, retail sales grew by 0.4% in September, following a 0.1% rise in August, surpassing analysts’ expectations of a 0.3% increase. Excluding automobiles, retail sales jumped by 0.5%, surpassing the consensus estimate of a 0.1% rise.
The retail sector, which faced challenges last year and much of 2024, is trying to pare the losses. Price pressures from the Federal Reserve’s aggressive monetary tightening to combat inflation drove interest rates to a 23-year high.
However, cooling inflation in recent months prompted the Federal Reserve to cut interest rates by 50 basis points in September. Market participants are now anticipating at least two more cuts of 25 basis points this year. These lower borrowing rates are expected to enhance consumers' purchasing power, which should ultimately boost retail sales.
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 3.9% and 13.2% 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 0.71%, which is lower than the category average of 0.99%.
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 & Entertainment fund has a history of positive total returns for more than 10 years. Specifically, FDLSX has returned nearly 10% and 13.6% over the past three and five-year periods, respectively. FDLSX has a Zacks Mutual Fund Rank #2 and its annual expense ratio is 0.73%, which is lower than the category average of 0.99%.
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 8.3% and 9.2% over the past three and five-year periods, respectively. FDFAX has a Zacks Mutual Fund Rank #2, and its annual expense ratio is 0.72%, which is lower than the category average of 0.94%.
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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