Retail sales saw robust growth in October, indicating that that sector is poised to perform well during the upcoming holiday season. The anticipation is based on rising consumer spending owing to easing borrowing rates.

The positive outlook makes it an opportune time to invest in retail and discretionary funds such as Fidelity Select Retailing Portfolio (FSRPX Quick QuoteFSRPX - Free Report) , Fidelity Select Leisure Portfolio (FDLSX Quick QuoteFDLSX - Free Report) and Fidelity Select Consumer Staples Portfolio (FDFAX Quick QuoteFDFAX - Free Report) .

Consumer Spending Powers Retail Sales

Retail sales increased 0.4% sequentially in October, surpassing economists’ expectations of a 0.3% rise, the Commerce Department reported on Friday. September’s sales growth was revised up to 0.8%, from the previously reported 0.4%.

Auto dealers saw a 1.6% increase, while electronics and appliance stores experienced a 2.3% rise. Receipts at food services and drinking places rose 0.7% in October, following a 1.2% increase in September.

Online sales grew 0.3% in October. A significant uptick in consumer spending is driving overall retail sales. Consumer spending rose 0.5% sequentially in September and 3.7% compared to last year. Additionally, easing price pressures are enabling consumers to spend more freely.

Rate Cut to Help Sales During Holiday Season

The retail sector struggled for most of last year as the Federal Reserve increased interest rates by 525 basis points to combat 40-year high inflation. Finally, the central bank cut interest rates by 50 basis points in September, followed by a 25-basis-point cut earlier this month, as part of its easing cycle in response to easing inflation. The rate cuts have substantially reduced borrowing rates and price pressures, which has been helping the retail sector as consumers are spending more freely.

Rate cuts and a surge in retail sales ahead of the holiday season bode well for the retail sector. Also, holiday sales in 2024 are expected to grow by 3.7% year over year, reaching $1 trillion, according to a new Forrester report. While this growth is slightly slower than in the past four years, it is significantly higher than in the pre-pandemic period.

Online retail sales are forecast to increase by 10.1%, reaching $257 billion this year, growing faster than the past two years. Online sales are expected to make up 26% of total retail sales in 2024.

3 Best Choices

As a result, we've chosen three funds from the retail and discretionary sectors that are worth buying. These funds have given impressive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking their 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 fund has a history of positive total returns for more than 10 years. Specifically, FSRPX has returned nearly 12.2% and 14.6% over the past five and 10-year periods, respectively. Fidelity Select Retailing Portfolio fund has a Zacks Mutual Fund Rank #1 and its annual expense ratio is 0.64%, which is lower than the category average of 0.99%.

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 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 14.7% and 12.7% over the past five and 10-year periods, respectively. FDLSX has a Zacks Mutual Fund Rank #2 and its annual expense ratio is 0.69%, which is lower than the category average of 0.99%.

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

Fidelity Select Consumer Staples Portfolio fund aims for capital growth. FDFAX invests the majority of its 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 7.8% and 6.5% over the past five and 10-year periods, respectively. FDFAX has a Zacks Mutual Fund Rank #2, and its annual expense ratio is 0.68%, which is lower than the category average of 0.94%.

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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