3 Funds to Buy on Strong Consumer Confidence – August 1, 2019

American consumers are highly optimistic about business conditions in the country and their spending in the coming months, as per new data from the Conference Board. After all, jobs are abundant, unemployment is low and the Fed is taking a dovish stance. These factors are likely to boost spending further.

In such a scenario, investing in consumer discretionary mutual funds seems prudent.

Consumer Confidence Touches Almost 18-Year High

According to the Conference Board, the consumer confidence index climbed to 135.7 in July, marking a sharp rebound from a disappointing 124.3 in June. The key economic indicator measures consumers’ attitude toward current business conditions and possible developments in the months ahead.

The consumer confidence last month hovered close to an 18-year high of 137.9 in October.

The significant rise in the index in July is particularly of importance since consumer spending accounts for about two-thirds of U.S. economic activity. This also means that consumers paid no heed to trade-related tensions and a slowdown in the U.S. economy in the second quarter.

Consumer confidence dampened in June because of trade issues. But the impressive 224,000 new job additions pushed consumer confidence higher. In addition, unemployment hovered near 50-year lows despite edging up at 3.7%. Sound wage growth, on an annualized basis of 3.1%, also instilled confidence in American consumers to spend more.

Fed Rate Cut Could Push Spending in Weeks Ahead

The central bank opted for a rate cut in the FOMC meeting on Jul 31. This marked the first cut in interest rates since the 2008 financial crisis in a bid to prolong the longest bull market in the history of United States.

On Jul 31, the Fed cut interest rates by 25 basis points, in line with market expectations. Fed Chair Jerome Powell cited trade tensions and global manufacturing slowdown as factors behind the central bank’s accommodative stance.

In fact, Americans felt more optimistic about their well-being due to a low interest rate environment. After all, rate cuts generally encourage households to spend more.

Our Choices

We have, thus, selected three mutual funds that invest in consumer discretionary and consumer staples. All these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging year-to-date returns. Additionally, the minimum initial investment is less than $5000. We expect these funds to outperform their peers in the future.

Now we come to the most vital question: 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 (FDLSX Free Report) fund primarily invests in companies that design, produce or distribute goods and services in the leisure industry. The fund invests the majority of its assets in securities of such companies. It mostly invests in common stocks.

This Zacks sector – Other fund has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FDLSX carries a Zacks Rank #1. The fundhas an annual expense ratio of 0.76%, which is below the category average of 1.23%. It has year-to-date returns of 23.6%.The fund has no minimum initial investment.

Fidelity Select Consumer Discretionary Portfolio (FSCPX Free Report) fund predominantly invests in companies that manufacture and distribute consumer discretionary products and services. The fund invests a majority of its assets in securities of these companies. It mostly invests in common stocks.

This Zacks sector – Other fund has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSCPX carries a Zacks Rank #1. The fundhas an annual expense ratio of 0.78%, which is below the category average of 1.23%. It has year-to-date returns of 20.2%.The fund has no minimum initial investment.

Fidelity Select Retailing Portfolio (FSRPX Free Report) fund mostly invests in companies that merchandise finished goods and services to individual consumers. The fund invests at least 80% of its assets in securities of these companies. It prefers to invest more in common stocks.

This Zacks sector – Other fund has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSRPX carries a Zacks Rank #2. The fundhas an annual expense ratio of 0.76%, which is below the category average of 1.23%. It has year-to-date returns of 18.4%.The fund has no minimum initial investment.

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