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The holiday season is approaching, and sales are expected to pick up this year, too. The retail sector has shown great resilience amid inflationary pressures that compelled the Federal Reserve to aggressively hike interest rates.

This has seen retail sales increasing almost every month this year. Given this situation, investing in retail and discretionary funds Fidelity Select Leisure Portfolio (FDLSX - Free Report), Fidelity Select Retailing Portfolio (FSRPX - Free Report) and Fidelity Select Consumer Discretionary Portfolio (FSCPX - Free Report) seems prudent.

Holiday Sales Poised to Grow

According to the latest Mastercard SpendingPulse, retail sales excluding automobiles are expected to jump 3.7% year over year during the holiday season, which typically starts from Nov 1 and runs through Dec 24.

With online shopping becoming a norm during the peak of the pandemic, customers are expected to shop across channels. Online shopping is projected to rise 6.7% year over year, while in-store sales are expected to increase 2.9%.

Electronics, gadgets and gaming are expected to top the wish lists of consumers. Electronics sales are expected to jump 6% year over year.

This comes as the retail sector continues to stage a solid rebound. Retail sales totaled $704.9 billion in September, jumping 0.7% after growing 0.8% in August. Core retail sales, which strips out sales at auto dealers, mobile homes, tobacco stores and gas stations, gained 0.6%. E-commerce sales increased 1% in September after rising 0.4% in the prior month.

The Fed reserve has increased interest rates by 525 basis points since March 2022 to take its benchmark policy rate to the range of 5.25-5.5%. The aggressive rate hike policy has seen inflation decline sharply over the past 15 months.

Easing inflation also saw the Fed leave its policy rate unchanged in its September FOMC meeting. Besides, it has hinted at going for another 25 basis point interest rate hike. Market participants are hopeful that the Fed will end its rate hike campaign after that, which definitely bodes well for the retail and discretionary sectors ahead of the holiday season.

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.

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 12.2% and 10.1% 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%.

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 2% and 6.8% 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%.

Fidelity Select Consumer Discretionary Portfolio fund invests the majority of its assets in common stocks of companies principally engaged in the manufacture or distribution of consumer discretionaries. FSCPX 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 Consumer Discretionary Portfolio fund has a history of positive total returns for more than 10 years. Specifically, FSCPX has returned nearly 3% and 6.7% 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%.

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