The holiday season has started on a positive note for retailers, with Black Friday and Cyber Monday sales hitting new highs. Retailers bank heavily on the holiday season, and it appears that consumers are spending lavishly this year, too, despite inflationary pressures.

The holiday season was already projected to be impressive and expectations are high that the coming month will be equally great for retailers. Given this positive outlook, investing in consumer discretionary and retail funds like Fidelity Select Leisure Portfolio (FDLSX Quick QuoteFDLSX - Free Report) , Fidelity Select Retailing Portfolio (FSRPX Quick QuoteFSRPX - Free Report) and Fidelity Select Consumer Discretionary Portfolio (FSCPX Quick QuoteFSCPX - Free Report) would be an ideal choice.

Holiday Season Starts on a Positive Note

The holiday season saw an impressive start, with sales hitting a record high. Deep discounts on a range of products, from cosmetics to electronic goods saw shoppers spending nearly $38 billion during the Thanksgiving weekend, according to data from Adobe Analytics.

Online spending surged 7.8% during the Cyber Week, which typically includes the five days from Thanksgiving through Cyber Monday, surpassing estimates of a jump of 5.4%.

The record spending during Cyber Week indicates that consumers are not hesitant to spend amid a tight monetary policy. Several retailers were skeptical about this year’s holiday season sales as inflationary pressures have been compelling shoppers to spend cautiously.

Retail sales unexpectedly fell 0.1% in October for the first time in seven months, Economists had predicted that the decline came as consumers saved more to spend more freely during the holiday season.

Also, people are a lot more confident now as many believe that the Federal Reserve may be done with its monetary tightening campaign, as inflation has been steadily declining over the past year.

The Federal Reserve has increased interest rates by 525 basis points since March 2022 in its bid to curb sky-high inflation. However, it left interest rates unchanged in the last two policy meetings as inflation has substantially eased.

This has raised hopes that the Fed may be done with its monetary tightening campaign and might not hike interest rates in its December FOMC meeting.

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 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 11.9% and 10.9% over the past three and five-year periods, respectively. FDLSX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.74%, which is below the category average of 0.79%.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

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 3.1% and 9.5% over the past three and five-year periods, respectively. Fidelity Select Retailing Portfolio fund has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.72%, which is below the category average of 0.79%.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Fidelity Select Consumer DiscretionaryPortfolio 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 2.7% and 8.1% over the past three and five-year periods, respectively. Fidelity Select Consumer Discretionary Portfolio fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.76%, which is below the category average of 0.79%.

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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