While the Federal Reserve was rapidly hiking interest rates throughout 2022 to cool inflation, investors rushed to safer, greener pastures generating cash flow, away from the far riskier and speculatory sectors like tech. Consumer Staples was one of the better-performing sectors last year, with the Consumer Staples Select Sector SPDR (XLP) sliding less than 1%, in what was other than Energy, a stock market bloodbath.

Consumer goods did well in January, riding on upbeat trade after the holiday season. Retail sales rose 3.2%, lending evidence to the fact. However, in February and March, retail sales fell 0.4% and 1%, respectively, and the January momentum came to a grinding halt.

Talks of an imminent recession have cast a pall over the market with the realization that the Fed might raise interest rates by a further 25 bps in May. But this does not necessarily mean that the sector will slide back into the red zone. As of the end of March, the benchmark SPDR gained 0.7% for 2023, and in March itself grew 4.2%.

The very defensive nature of these stocks ensures that market volatility does not have a lasting impact on the sector. The word “staples” itself quite efficiently explains that consumers would need them regardless of what transpires. The sector, thus, is fundamentally strong and resistant to the vagaries of the market.

Consumer staples may not have the highest earnings growth or year-over-year revenue growth, but the sector has experienced relatively little disruption historically. On the positive side, these stocks make up for modest growth with low price volatility, reliable profits, dividends, and defensive positioning.

It must also be noted that for the first time in months, inflation was seen to be slowing down in March and that the central bank is largely expected to go for a rate pause in the second half of the year. In such an eventuality, people will have more money to spend, and the sector will get an inevitable boost.

Hence, astute investors should invest in mutual funds focused on consumer staples at present. Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

We have thus selected two such mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy), 2 (Buy), have positive three-year and five-year annualized returns, minimum initial investments within $5000, and carry a low expense ratio.

Fidelity Select Retailing Portfolio (FSRPX - Free Report) normally invests the majority of its assets in common stocks of companies principally engaged in merchandising finished goods and services primarily to individual consumers. FSRPX 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.

As of November 2022, the top three holdings for FSRPX are 19.5% in Amazon, 12.1% in Home Depot and 8.6% in Lowe’s.

FSRPX’s 3-year and 5-year annualized returns are 15.1% and 10.1%, respectively. Its net expense ratio is 0.72% compared to the category average of 0.79%. FSRPX has a Zacks Mutual Fund Rank #2. 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 (FDIGX - Free Report) invests the majority of its assets in securities of companies principally engaged in the manufacture, sale, or distribution of consumer staples. FDIGX 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.

As of November 2022, the top three holdings for FDGIX are 15.1% in Coca-Cola, 14.6% in Procter & Gamble and 7.3% in Walmart.

FDIGX’s 3-year and 5-year annualized returns are 15.8% and 8.8%, respectively. Its net expense ratio is 0.74% compared to the category average of 0.76%. FDIGX has a Zacks Mutual Fund Rank #2.

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