The retail sector had a tough 2023 but sales are climbing steadily this year as the sector makes an effort to rebound. The Commerce Department said on Wednesday that retail sales rose at an impressive pace in November, signaling the underlying strength in the economy.

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With the Federal Reserve already having started its easing cycle, the sector is poised to benefit in the near term as borrowing rates ease further. Given this situation, it would be ideal to invest in retail and discretionary funds such as Fidelity Select Retailing Portfolio FSRPX, Fidelity Select Consumer Staples Portfolio FDFAX and Fidelity Select Leisure Portfolio FDLSX.

Retail sales rose 0.7% month over month in November after an upwardly revised 0.5% in the prior month and surpassed the consensus estimate of a rise of 0.5%. The jump in November was primarily driven by a robust 2.4% rise in sales of motor vehicles and a 1.8% rise in online sales. Year over year, retail sales grew 3.8% in November.

Retail sales account for a large part of the nation’s overall economic activity and the jump in November signals a solid consumer sector. Also, the robust sales indicate an impressive start to the all-important holiday season.

Consumers have been spending freely over the past few months as inflation has declined substantially from the year-ago levels and lower borrowing rates following the Federal Reserve’s two consecutive rate cuts have eased price pressures. The Federal Reserve cut interest rates by a total of 75 basis points in two months, starting in September.

Although the Federal Reserve has said that the economy is on solid ground and interest rates will be cut gradually in 2025, market participants are hopeful about another quarter percentage point rate cut at the end of its two-day policy meeting this week. Lower borrowing rates will further boost the purchasing power of the consumers, which is expected to benefit the retailers.

As a result, we’ve chosen three funds from the retail and discretionary sectors that are worth buying. These funds have given impressive 5-year and 10-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.

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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).

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