Retail Sales Notch a 6-Month High: 3 Fund Picks

Americans spent more on luxury items and recreational goods in the last month, propelling retail sales to a six-month high in May. The surge in retail sales clearly indicate that the U.S. economy is on track for solid growth in the second quarter. Consumers spent more on buying cars and other luxury goods amid an 18-year low unemployment rate.

Such conditions make it ideal for investors to bet on mutual funds investing in leisure, discretionary and transportation companies.

Retail Selling Gained Traction in May

Retail sales surged to its highest level in May since November 2017, increasing 0.8%. This also represented a 5.9% increase from last year and follows the revised 0.4% growth in April. Further, if automobiles, gasoline, building materials and food services are excluded, the metric registered 0.5% growth in May.

Sales of automobiles jumped 0.5% in the month, following a 0.2% increase in April. Also, sales at service station were up 2% in May, indicating higher-than-normal gasoline prices. This apart, an average American spent more on clothes as well as in restaurants and bars, both up 1.3% in the last month. While the jump in apparel sales marked its biggest advance since March 2017, receipts at restaurants and bars registered the biggest gain since January 2017.

Robust Labor Market Conditions

Gelogis

Per the U.S. Bureau of Labor Statistics, the U.S. economy witnessed a mindboggling 223,000 new job additions in May. The consensus estimate for the period was 190,000 new job additions. This also marked the highest number of job additions in the last three months. Notably, the unemployment rate remained unchanged at 3.8% in May, its lowest since April 2000. Moreover, the total number of unemployed is down by 772,000 or 0.5%, year over year.

Further, average hourly earnings jumped 0.3% from April to $26.92 in May, higher than the consensus estimate of an increase of 0.2%. From May last year alone, average hourly earnings have advanced 2.7%. Along with higher wages, the average workweek for all employees came in at 34.5 hours last month.

3 Best Fund Picks

Given such positives vibes from the market, we have highlighted three funds having significant exposure on leisure, discretionary and transportation companies. These funds also carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three and one-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 seeks capital appreciation. FDLSX normally invests at least 80% of 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's returns over the three and five-year benchmarks are 10.5% and 13.6%, respectively. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds,  please click here.

FDLSX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.77%, which is below the category average of 1.17%.

Fidelity Select Consumer Discretionary Portfolio Fund FSCPX 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 has returned 11.4% over the three-year and 13.5% over the five-year benchmark. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds,  please click here.

FSCPX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.77%, which is below the category average of 1.17%.

Fidelity Select Transportation FSRFX seeks capital growth. FSRFX invests the majority of its assets in securities of companies involved in the design, manufacture and sale of transportation equipment and provide transportation services. The non-diversified fund invests in both U.S. and non-U.S. companies.

This Sector – Other product has a history of positive total returns for over 10 years. Specifically, the fund has returned 12.1% over the three-year and 15.4% over the five-year benchmark. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds,  please click here.

FSRFX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.80%, which is below the category average of 1.04%.

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