Q3 GDP Thanks Consumer Spending: 3 Funds To Shop Now

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Includes: BPTRX, FCNAX, HDPBX
by: Zacks Funds

The GDP “second” estimate released by the Bureau of Economic Analysis should be thanking the consumer spending for improving from the “advance” estimate and beating expectations. The second estimate of real gross domestic product, adjusted for price changes, was revised up to 3.9%. Among other factors, it was the personal consumption expenditures increasing 2.2% that led to higher “second” estimate. Also, nonresidential fixed investment, federal government spending, exports, residential fixed investment, and state and local government spending were the other positives.

The retail sector is significantly benefited from higher consumer spending as expenditure in retail sector represents almost 30% of the consumer spending. We are also amidst the holiday season and holiday sales are expected to be on the brighter side. Thus, it may be a good time to invest in favorably ranked consumer mutual funds.

Consumer Spending: Main Contributor

Consumer spending, which constitutes more than 75% of economic activity in the U.S., grew 2.2% in the third quarter, compared to earlier projection of 1.8% rise. Spending was revised higher for both durables and non-durables. Spending on durables and non-durables were revised upward to 8.7% and 2.2%, compared to earlier estimates of 7.2% and 1.1%, respectively. Other factors which include non-residential as well as residential and government spending also played important roles behind this strong GDP data.

Factors Boosting Consumer Spending

As explained earlier, consumer spending was the main contributor to boost the third quarter GDP growth. Consumer spending increased in the third quarter on the back of some of the important economic factors. These factors include decline in unemployment rate and increase in consumer confidence over the period.

The unemployment rate declined to 5.8% in October, recording the lowest figure since Jul 2008. This was followed by 5.9% rate in September and 6.1% rate in August. Apart from these, factors such as favorable credit availability, low level of inflation, decline in oil prices and low interest rate significantly contributed in raising consumer spending.

Holiday Sales Estimates

Data compiled by the nation's largest retail trade group, National Retail Federation [NRF], suggests a 4.1% jump in holiday sales (November and December) to $616.9 billion, against 3.1% growth registered last year and better than the 10-year average sales increment of 2.9%. Online sales for this holiday season are projected to increase 8%–11% to approximately $105 billion, according toShop.org. Moreover, NRF expects seasonal recruitment to range between 725,000 and 800,000 this year compared with 768,000 hired in the prior holiday season.

3 Funds to Buy Now

Here we will look at funds that carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy). These funds also have positive returns.

Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but the likely future success of the fund.

Fidelity Advisor Consumer Discretionary A (MUTF:FCNAX) seeks growth of capital. The fund invests mostly in securities issued by firms that are involved in manufacture and distribution of consumer discretionary products and services. The fund uses fundamental analysis and also looks into economic and market conditions for investment decisions.

The fund carries a Zacks Mutual Fund Rank #1 (Strong Buy) and has returned 6.9% year to date. Also, the fund boasts 3-year and 5-year returns of 24.7% and 19%, respectively.

The fund carries an expense ratio of 1.19% as compared to category average of 1.46%.

The fund’s top holdings include Home Depot Inc (NYSE:HD), TJX Companies (NYSE:TJX) and Starbucks Corp (NASDAQ:SBUX).

Hodges Blue Chip 25 Retail (MUTF:HDPBX) invests a lion’s share of its assets in large-cap equities. These companies have market cap that are within the range of those listed in S&P 500 index. The fund seeks capital growth over the long term.

The fund carries a Zacks Mutual Fund Rank #2 (Buy) and has returned 10.9% year to date. Also, the fund boasts 3-year and 5-year returns of 23.5% and 13.6%, respectively.

The fund carries an expense ratio of 1.30%, which however is higher than the category average of 1.46%.

The fund’s top holdings include Home Depot Inc, Costco Wholesale Corp (NASDAQ:COST) and Walt Disney Co (NYSE:DIS).

Baron Partners Retail (MUTF:BPTRX) invests in common stocks of domestic growth companies, irrespective of their sizes. The fund invests in those companies with potential for growth, sustainable competitive advantages, strong, visionary management, and an attractive valuation.

The fund carries a Zacks Mutual Fund Rank #1 (Strong Buy) and has returned 10.7% year to date. Also, the fund boasts 3-year and 5-year returns of 27.6% and 19.6%, respectively.

The fund carries an expense ratio of 1.38%.
The fund’s top holdings include Charles Schwab Corp (NYSE:SCHW), CarMax Inc (NYSE:KMX) and Tesla Motors Inc (NASDAQ:TSLA).

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