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What the 9/12 Retail Sales Report Means for Mutual Fund Investors

Stoyan Bojinov Sep 12, 2014

The latest retail sales report was encouraging, as consumer spending increased during the month of August, while also prompting an upward revision of the last two data releases; the month-over-month growth rate also managed to meet analysts' expectations.

Inside the August 2014 Retail Report

The latest retail sales report showed a gain of 0.6% during the month of August, coming in-line with what markets were expecting and also managing to beat last month’s figure of 0.3%. Excluding auto sales, which can be quite volatile on a monthly basis, the retail sales figure still managed to grow by 0.3%, offering some encouragement for the domestic recovery.

Digging deeper, the overall sales figure received the biggest tailwind from the automotive sector, which saw sales growth of 1.5% in August, marking the biggest rise since March. Other sectors that saw growth were food, electronic, internet, and sporting goods retailers along with bars and restaurants.

The laggards in this month’s report were sales for general merchandise and department stores. Overall, retail sales have risen 5% in the past year; July sales were revised to 0.3% from being flat, and June sales were revised to 0.4% from 0.2%.

Mutual Funds on Watch: Consumer-Focused

The table below highlights some of the most popular and best performing mutual funds that offer exposure to domestic retailers.

Ticker	Name	AUM	1-Year Return
FDAGX	Fidelity Select Consumer Staples Portoflio	$2.3B	8.41%
VCDAX	Vanguard Consumer Discretionary	$1.4B	15.47%
FSCPX	Fidelity Select Consumer Discretionary Portoflio	$778.8M	10.07%
FSRPX	Fidelity Select Retailing Portfolio	$753.4M	9.05%
ICCAX	ICON Consumer Discretionary	$65.6M	13.81%

Despite the upbeat news from the retail front, major equity indexes are trading slightly to the downside Friday morning; the S&P 500 Index is down 0.27%, sinking slightly alongside other domestic stock benchmarks.

In this current environment, consumer-focused stocks are regarded as a gauge for the overall pace of the recovery, as well as the health of the labor market; this is because the availability of jobs and wage levels play a key role in influencing consumer spending habits.

As such, today’s upbeat report serves as evidence that the recovery is indeed continuing to pick up steam.

The Bottom Line

Retail stocks span a wide array of firms, which makes this asset class difficult to analyze through a single lens. For instance, consumer discretionary stocks are by nature more cyclical given that their line of business is more sensitive to changes in the overall economy; as a result, this asset class offers lucrative growth potential during times of prosperity.

Consumer staple stocks on the other hand are more defensive by nature, and less volatile, since they sell everyday household goods, which are more or less necessary for survival, regardless of the economic environment.

As a whole, consumer-focused mutual funds warrant a closer look from anyone looking diversify their portfolio’s equity component since this asset class can be utilized to generate current income as well as attractive capital gains at times.