High inflation has compelled the Fed to go ahead with its steep interest rate hike stance. The central bank raised interest rates on six occasions in 2022, and more such hikes are to follow this year. However, inflation has somewhat eased over the past couple of months, raising hope among consumers that the economy might gradually bounce back in the coming months.
This has seen consumer confidence and sentiment both rebounding lately. Higher demand is still making people spend on consumer goods. Also, people now have faith in the future of the economy thanks to a robust labor market. Given this scenario, people can bet on some top-ranked retail and consumer discretionary funds like Fidelity Select Retailing Portfolio (FSRPX – Free Report) , Fidelity Select Consumer Staples Portfolio Class C (FDCGX – Free Report) and Fidelity Select Consumer Staples Portfolio (FDFAX – Free Report) .
Consumer Confidence, Sentiment Soar
The Conference Board said last month that consumer confidence soared to 108.3 in December from 101.4 in November, the highest reading since April and also beating analysts’ expectations of 101.
Lower gasoline prices played a significant role in boosting consumer confidence in December. However, optimism about easing inflation was mainly behind the jump in consumer confidence. Consumer prices grew marginally in November, suggesting that inflation may have reached its peak and has finally started to ease, although it is still at a multi-year high.
The 12-month inflation expectation also declined, falling to 6.7% in December from 7.1% in November, its lowest level since September 2021. Additionally, the Present Situation Index, which measures how consumers currently perceive the state of the economy and labor, rose from a reading of 138.3 in November to 147.7 in December.
The Expectations Index, commonly referred to as the gauge of expectations, which measures consumer expectations for business, income, and labor market conditions over the next six months rose significantly from 76.7 in November to 82.4 in December.
Additionally, consumer sentiment rose in December. The University of Michigan’s consumer sentiment index for December came up with a reading of 59.7, up from November’s reading of 56.8.
The Current Index increased to 59.4 from 58.8 in November. The Expectations Index climbed to 59.9 in December from 55.6 in November.
Although inflationary pressures are still high and the Fed has signaled more rate hikes in 2023, confidence has begun to somewhat rebound since the central bank has slowed the rate of interest rate hikes.
The Fed raised interest rates by 50 basis points in December following four consecutive increases of 75 basis points. A lower increase in interest rates indicates that the Fed is gradually getting control over inflation. Also, wages have been rising despite inflationary pressures.
3 Best Choices
We have, thus, selected three mutual funds with significant exposure to the retail and consumer discretionary sector carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (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 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 has a history of positive total returns for more than 10 years. Specifically, FSRPX has returned nearly 9.6% and nearly 12.1% over the past three and five-year periods, respectively. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
FSRPX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.73%, which is below the category average of 0.79%.
Fidelity Select Consumer Staples PortfolioClass C fund invests the majority of its assets in securities of companies whose primary business is the production, sale, or distribution of consumer goods. FDCGX makes investments in both domestic and overseas issuers.
Fidelity Select Consumer Staples Portfolio fund has a history of positive total returns for more than 10 years. Specifically, FDCGX has returned nearly 9.1% and 7.1% over the past three and five-year periods, respectively. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
FDCGX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0%, which is below the category average of 0.76%.
Fidelity Select Consumer Staples Portfolio fund aims for capital growth. FDFAX invests the majority of assets in securities of companies primarily engaged in manufacturing, marketing or distribution of 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 10.2% and 8.3% over the past three and five years, respectively. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
FDFAX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0% versus the category average of 0.76%.
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