Funds say: Ready, set, shop!
Retail has been a mixed bag, but some mutual funds are finding great bargains. Here's how to get in on the deals.
March 7, 2002: 6:49 p.m. ET
By Staff Writer Martine Costello
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NEW YORK (CNN/Money) - Throughout the recession, Americans were worrying about losing their jobs, but they still kept right on spending.
They dug through the bargain bin at T.J. Maxx, and waited 20 minutes for a parking spot at Home Depot on Saturdays. Times were tough, but sometimes they even splurged on stereo speakers and diamond earrings.
The S&P Retail Index is up 30 percent since the Sept. 11 terrorist attacks and up 1.2 percent this year. As consumers hunted for discounts and focused on home and family, mutual funds that have ridden the winners in the sector have fared better than the S&P 500. If you want to invest in the sector, there are plenty of choices.
Funds see dollar signs
Funds that love retail are so diverse you can roam across the fund universe, finding diamond stores and deep-discount warehouses in their mixes.
Large growth fund Nations Marsico Focused Equity loves high-end retailer Tiffany & Co., while small value fund FPA Capital believes in Michael's Store, a seller of arts and crafts. Tiffany (TIF: up $1.54 to $37.58, Research, Estimates) and Michael's Store are both trading at or near their 52-week highs.
Nations Marsico, with 18 percent of assets in retail stocks, is up 2.5 percent year to date as of Wednesday, according to Morningstar. FPA Capital, with 22.5 percent in the sector, is up 5.1 percent. The S&P 500 is up 1.5 percent in the same time period.
"We've focused on retailers that we would call 'category killers,'" said Robert Rodriguez, manager at FPA Capital, said recently. A bigger stake in retail helped FPA be a top performer in 2001. (Click here for more on last year's fund winners and losers.)
The winning funds banked on stocks such as Home Depot, which recently posted robust sales figures for February. They also avoided flameouts such as K-Mart, which filed for bankruptcy protection in January.
Duncan Richardson, manager of Eaton Vance Tax-Managed Growth, said retail stocks have had something of a winner-take-all mentality. So even though there are losers such as K-Mart, you can find top performers such as Wal-Mart. The Eaton Vance fund is up 1 percent as of Wednesday.
Click here to check the retail stocks on CNN/Money
There are also a few funds that take a purist's approach, such as Rydex Retailing and Fidelity Select Retailing, which keep 80 or 90 percent of assets in the sector. Since they may have a harder time avoiding the flameouts, they have had a harder time. The Rydex fund is up 0.64 percent and Fidelity Select is down 1.4 percent as of Wednesday, Morningstar said.
Still, Fidelity Select Retailing has a solid long-term record, up an annualized 11.7 percent during the past 10 years, according to Morningstar.
But unless you truly believe in the sector -- and that consumer spending will continue on a tear -- you probably should limit your weighting, said Peter Di Teresa, an analyst at Morningstar. He suggested you stick to 6 percent, which is what retail represents in the total stock market.
Scanning a list of funds with a big retail weighting, Di Teresa suggested the following as good bets: Oakmark Select, Marsico Growth, Gabelli Mathers and Wasatch Small-Cap Growth. (Note: Wasatch Small-Cap Growth and Oakmark Select are closed to new investors, but most funds reopen from time to time.)
And keep in mind that retail has been on a longish run since the fall. Richardson said the sector could be in the "seventh-inning stretch," meaning the strong returns might not last forever. There's a chance consumers could get a little tired in the second half of the year.
Then again, consumer spending might keep on surprising Wall Street, as it did after Sept. 11. 
* Disclaimer
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