The retail sector was badly hit by sky-high inflation and rising price pressures as the Federal Reserve increased interest rates to stabilize the economy. However, easing price pressures have seen retail sales rebounding over the past few months.

The Commerce Department said that retail sales jumped 0.7% month over month in March, easily surpassing economists’ expectations of a rise of 0.3%. Also, year over year, retail sales grew a solid 4% in March.

Excluding autos, retail sales were up 1.1%, beating analysts’ expectations of a rise of 0.5%. The robust growth in February and March retail sales also indicates that the first quarter ended on an impressive note and that the economy remains on solid ground.

The March increase is due to strong online sales, which rose by 2.7% compared to the previous month.

Despite ongoing inflationary pressures and increased borrowing costs, consumers continued to spend generously. In March, the consumer price index rose by 0.4%.

A resilient labor market that saw a total of 276,000 job additions on average in the first quarter, higher than the average of 212,000 in the final quarter of 2023, proves that consumers are not concerned about spending freely.

A steady rise in personal income is giving consumers more spending power. Also, the Federal Reserve has announced plans for three rate cuts this year, with the first expected to come in June. Lower interest rates reduce borrowing costs, which is beneficial for both the retail sector and the overall economy.

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 FSRPX 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 3.5% and 13.8% over the past three and five-year periods, respectively. Fidelity Select Retailing Portfolio fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.72%.

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 FSCPX fund invests the majority of its assets in common stocks of companies principally engaged in the manufacture or distribution of consumer discretionaries. 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 3.1% and 12.1% 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 0.75%.

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 FDLSX 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 9.9% and 13.9% over the past three and five-year periods, respectively. FDLSX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.73%.

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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