3 Funds to Buy as Retail Sales Trump Estimates in January – February 18, 2021

The U.S. Census Bureau reported on Feb 17 that retail sales showed a dramatic uptick in January, much above the consensus estimate. The figure not only shows a rebound from the prior month’s decline but also points toward chances of rising inflation. The rise in sales was accelerated by the $600 stimulus checks received by consumers in January.

The reports point toward a rebound in consumer spending, making investment in mutual funds that have significant exposure to retail companies seem like a prudent option.

Spending Rise in Every Major Category

Per the report, retail and food services sales were $568.2 billion for January, up 5.3% from the prior month. Retail sales jumped 7.4% from the same period last year and surpassed the consensus estimate of 1.1%. The figure for December 2020 has been revised to a decline of 1%. January’s gains ended a three-month decline and broke the previous record set in September 2020.

In January, the electronics and appliances segment witnessed the biggest jump, up 14.7% from the month before. The report also shows a 12% and 5% rise in furniture and home furnishing stores and clothing stores, respectively. Meanwhile, online spending jumped 11% at non-store retailers. Bars and restaurants which have suffered the worst during the pandemic rose 6.9% last month. However, these stores continue to suffer the brunt of the health scare and are 16.6% down from last year. Conversely, sales at auto dealerships rose 3.1% last month.

In comparison to January 2020, e-commerce sales jumped 28.7%, followed by 19% and 22.5% jump in building materials and sporting goods sales, respectively. Sales across certain segments continued to decline, with 11.1% and 3.5% drop in clothing & accessories and electronics & appliances, respectively. 

3 Top Fund Picks

Given the surprise uptick in retail sales in January, we are optimistic that the trend will continue this year. Keeping this in mind, we have shortlisted three mutual funds that are poised to grow. These funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging one and three-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 Consumer Discretionary Portfolio (FSCPX Free Report) fund aims for capital appreciation. The non-diversified fund invests majority of assets in common stocks of companies that are engaged in the manufacture and distribution of consumer discretionary products and services.

This Zacks Sector-Other product has a history of positive total returns for more than 10 years. Specifically, FSCPX has three and five-year return of 15.9 and nearly 18%, respectively. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSCPX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.76%, which is below the category average of 1.22%.

Fidelity Select Retailing Portfolio (FSRPX Free Report) fund aims for capital appreciation. This non-diversified fund invests a large portion of its assets in the common stock of companies engaged in merchandising finished goods and services, primarily to individual consumers.

This Zacks Sector-Other product has a history of positive total returns for more than 10 years. Specifically, FSRPX has three and five-year return of 24% and 20.2%, 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 0.74%, which is below the category average of 1.22%.

Fidelity Select Leisure Portfolio (FDLSX Free Report) fund aims for capital appreciation. This non-diversified fund invests majority of assets in common stocks of companies, principally engaged in the design, production, or distribution of goods or services in the leisure industries.

This Zacks Sector-Other product has a history of positive total returns for more than 10 years. Specifically, FDLSX has three and five-year return of 12.3% and 14.2%, 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 #2 and an annual expense ratio of 0.76%, which is below the category average of 1.22%.

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