Sector Rotation: Cyclicals are Outperforming Again; Top 3 Consumer Discretionary Funds

Low unemployment and a strong economy are boosting consumer confidence. Not surprising that the market anticipates that consumers will be spending even more on discretionary items, such as entertainment, travel and online shopping.

In our view, the best investment funds to play this trend will continue to be the ones that already perform well. We utilized the sector screen (provided by FidelitySectorReport.com) to identify the best candidates.

Top 3 Fidelity consumer discretionary funds:

The Fidelity Select Consumer Discretionary Fund (FSCPX) provides a diversified investment in the broad sector. We like FSCPX at this point because it is outperforming the S&P 500 index again and the chart also shows a positive technical setup.

 

The retailing sub-sector is the strongest within the cyclicals sector. The Fidelity Select Retailing Fund (FSRPX) is already at an all-time record level, but we think that it can go higher. Top holdings of FSRPX include leading companies, such as Amazon, Home Depot, Booking, and Netflix.

 

In our view, a newly emerging investment opportunity is the Fidelity Select Automotive Fund (FSAVX). After five months of consolidation, we think that the technical picture is improving and FSAVX can catch up to the other sub-sectors in the cyclicals sector.

 

View fund rankings at FidelitySectorReport.com

 

 

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Sector Rotation: Automotive Stocks are Advancing Again

Last year was a tough year for car companies, but 2017 may become a turnaround year for the sector. We think that a combination of factors, such as new product cycles and the availability of relatively low-cost financing, will make this sector increasingly attractive again for investors.

Our investment of choice in this space is the Fidelity Select Automotive Fund (FSAVX), which provides diversification in the sector:

Not surprisingly, the growth comes from innovators in the sector, such as Tesla:

While traditional car companies are still struggling to increase financial performance:

Another growth driver is the increased interest in used cars, which is fueled by the large supply of low milage cars coming off of short-term leases. Used-car dealers, such as Carmax, are benefiting from this trend:

We identified the change of the long-term trend in the automotive sector using the momentum screen provided by Fidelity Sector Report. Click here to see more advancing sectors.

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Sector Rotation: Declining Oil Price Boosts Retailing and Automotive Stocks

The price of energy-related commodities, such as light crude oil, experienced a sharp short-covering rally at the beginning of the week, but the downtrend appears to be resuming again:

As consumers save money at the gas pump, they have more disposable income to spend at the shopping mall or to purchase merchandise online, which boosted the earnings prospects of companies in the retailing sector. The Fidelity Select Retailing Fund (FSRPX) is an excellent way to take advantage of this trend:

Car company stocks also responded positively to declining energy prices. Should this trend continue into the summer months, the strategy of overweighting the Fidelity Select Automotive Fund (FSAVX) and underweighting energy stocks may offer the most optimal portfolio allocation approach:

 

Read more about investment strategies at FidelitySignal.com

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FSAVX is the Fidelity fund to watch in 2012, as low valuations in the automotive sector may present a buying opportunity

The Fidelity Select Automotive fund (FSAVX, change: -2.53%) is down 30.63% year-to-date, making it the weakest performing sector fund of 2011 so far. Should the economy improve in 2012, this sector may offer excellent investment opportunites, if automakers can increase their profitability again.

 

Mutual fund screens and buy/sell signals are provided by FidelitySignal.com