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The concluding quarter of this year has been quite eventful for the domestic market, marked by major developments like Donald Trump’s victory in the U.S. Presidential election and a Fed rate hike. Following Trump’s startling victory, investors have geared up for a Republican Presidency and are presently focusing on industries which found special mention in his campaign speeches.
One such area is the financial sector, which is projected to benefit immensely from a Trump administration. This is mainly because the President-elect is expected to proceed with financial deregulation and introduce expansionary infrastructure spending, which, along with a faster pace of rate hikes is expected to boost the financial industry. This is why mutual funds, which have significant exposure to the financial sector, are expected to gain in the coming months.
Scaling Back Dodd-Frank
Trump viewed the Dodd-Frank regulatory overhaul as a harsh measure, especially on smaller banks. Trump has called for repealing parts of the Dodd-Frank Act, which has for a considerable period of time limited operational flexibility of financial companies. Trump’s team is also focusing on reducing the scope of the Financial Stability Oversight Council (FSOC), which serves as a watchdog for big players in the economy.
Trump has gone on record to say that the Dodd-Frank regulations have made it “very hard for bankers to loan money for people to create jobs, for people with businesses to create jobs.” Easing of these regulations might improve banks’ lending capacities and eventually their business.
Minimum Asset Limit Raised to $250 Billion
Another such change will be raising the minimum asset threshold for banking behemoths to $250 billion from $50 billion. This in turn will boost valuations, bring in more flexibility and increasing consolidation as well as lending activity.
Moreover, Trump hinted at plans to re-introduce the 1933 Glass-Steagall act, which focused on the division of investment and commercial banking. He added that one of his key priorities is to help "African American businesses get the credit they need."
Fed Indicates Faster Rate Hikes for 2017
Earlier this month, the Fed had raised the interest rate from a range of 0.25%–0.5% to 0.5%–0.75%. This marked the first hike in 2016 and second in the last ten years. Further, the Fed expects three rate increases next year, higher than the two hikes projected in September’s meeting, on the back of a stronger domestic economy.
The financial sector is likely to gain because a higher rate environment will help boost the interest margin as well as increase loan demand. Along with banks, other industries under the financial sector like consumer finance, insurance and asset management are likely to benefit as well.
Higher Infrastructure Spending and Tax Cuts
Further, the President-elect is in favor of increasing public spending on infrastructure by a trillion dollars over the next 10 years. In fact, he is expected to offer $137 billion in tax credits to private construction companies undertaking infrastructure projects.
Also, Trump called for sweeping reductions in personal income tax and has talked about trimming the business tax rate from 35% to 15%. Corporate bodies will also get a chance to repatriate foreign profits at a rate of 10%. Higher spending and lower tax rates is likley to boost inflation and bring about a higher rate environment.
Buy These 4 Financial Mutual Funds
Recent data related to the financial sector clearly indicates growth for the sector is likely to pick up. This is borne out by the fact that the Financial Select Sector SPDR (XLF) gained 21.7% in the last three months, emerging as the best performing sector among the S&P 500. Additionally, mutual funds related to this sector also registered strong returns. According to Morningstar, financial mutual funds have returned 17.7% over the last three months.
Against this encouraging backdrop, we have selected four financial mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have an impressive three-month return. They also have minimum initial investment within $5000 and low expense ratios.
We expect these funds to outperform their peers in the future. 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 also on the likely future success of the fund.
Fidelity Select Consumer Finance Portfolio (FSVLX - Free Report) invests a large chunk of its assets in securities of companies that provide products and services related to consumer finance. FSVLX primarily focuses on acquiring common stocks of companies across the globe. The fund’s three-month return is 12.1%. Its annual expense ratio of 0.89% is lower than the category average of 1.59%. FSVLX has a Zacks Mutual Fund Rank #1.
Fidelity Select Financial Services Portfolio (FIDSX - Free Report) invests the majority of its assets in common stocks of companies involved in offering financial services to industry and consumers. The fund’s three-month return is 18.4%. Its annual expense ratio of 0.75% lags the category average of 1.59%. FIDSX has a Zacks Mutual Fund Rank #1.
JHancock Regional Bank A (FRBAX - Free Report) invests a lion’s share of its assets in stocks of regional banks and other lending companies, including commercial and industrial banks, savings and loans associations and bank holding companies. The fund’s three-month is 30.1%. Its annual expense ratio of 1.27% is lower than the category average of 1.59%. FRBAX has a Zacks Mutual Fund Rank #2.
Fidelity Advisor Financial Services A (FAFDX - Free Report) invests more than 80% of its assets in securities of companies principally engaged in providing financial services to consumers. The fund’s three-month return is 18.3%. Its annual expense ratio of 1.15% lags the category average of 1.59%. FAFDX has a Zacks Mutual Fund Rank #2.
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4 Financial Mutual Funds to Watch in 2017
The concluding quarter of this year has been quite eventful for the domestic market, marked by major developments like Donald Trump’s victory in the U.S. Presidential election and a Fed rate hike. Following Trump’s startling victory, investors have geared up for a Republican Presidency and are presently focusing on industries which found special mention in his campaign speeches.
One such area is the financial sector, which is projected to benefit immensely from a Trump administration. This is mainly because the President-elect is expected to proceed with financial deregulation and introduce expansionary infrastructure spending, which, along with a faster pace of rate hikes is expected to boost the financial industry. This is why mutual funds, which have significant exposure to the financial sector, are expected to gain in the coming months.
Scaling Back Dodd-Frank
Trump viewed the Dodd-Frank regulatory overhaul as a harsh measure, especially on smaller banks. Trump has called for repealing parts of the Dodd-Frank Act, which has for a considerable period of time limited operational flexibility of financial companies. Trump’s team is also focusing on reducing the scope of the Financial Stability Oversight Council (FSOC), which serves as a watchdog for big players in the economy.
Trump has gone on record to say that the Dodd-Frank regulations have made it “very hard for bankers to loan money for people to create jobs, for people with businesses to create jobs.” Easing of these regulations might improve banks’ lending capacities and eventually their business.
Minimum Asset Limit Raised to $250 Billion
Another such change will be raising the minimum asset threshold for banking behemoths to $250 billion from $50 billion. This in turn will boost valuations, bring in more flexibility and increasing consolidation as well as lending activity.
Moreover, Trump hinted at plans to re-introduce the 1933 Glass-Steagall act, which focused on the division of investment and commercial banking. He added that one of his key priorities is to help "African American businesses get the credit they need."
Fed Indicates Faster Rate Hikes for 2017
Earlier this month, the Fed had raised the interest rate from a range of 0.25%–0.5% to 0.5%–0.75%. This marked the first hike in 2016 and second in the last ten years. Further, the Fed expects three rate increases next year, higher than the two hikes projected in September’s meeting, on the back of a stronger domestic economy.
The financial sector is likely to gain because a higher rate environment will help boost the interest margin as well as increase loan demand. Along with banks, other industries under the financial sector like consumer finance, insurance and asset management are likely to benefit as well.
Higher Infrastructure Spending and Tax Cuts
Further, the President-elect is in favor of increasing public spending on infrastructure by a trillion dollars over the next 10 years. In fact, he is expected to offer $137 billion in tax credits to private construction companies undertaking infrastructure projects.
Also, Trump called for sweeping reductions in personal income tax and has talked about trimming the business tax rate from 35% to 15%. Corporate bodies will also get a chance to repatriate foreign profits at a rate of 10%. Higher spending and lower tax rates is likley to boost inflation and bring about a higher rate environment.
Buy These 4 Financial Mutual Funds
Recent data related to the financial sector clearly indicates growth for the sector is likely to pick up. This is borne out by the fact that the Financial Select Sector SPDR (XLF) gained 21.7% in the last three months, emerging as the best performing sector among the S&P 500. Additionally, mutual funds related to this sector also registered strong returns. According to Morningstar, financial mutual funds have returned 17.7% over the last three months.
Against this encouraging backdrop, we have selected four financial mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have an impressive three-month return. They also have minimum initial investment within $5000 and low expense ratios.
We expect these funds to outperform their peers in the future. 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 also on the likely future success of the fund.
Fidelity Select Consumer Finance Portfolio (FSVLX - Free Report) invests a large chunk of its assets in securities of companies that provide products and services related to consumer finance. FSVLX primarily focuses on acquiring common stocks of companies across the globe. The fund’s three-month return is 12.1%. Its annual expense ratio of 0.89% is lower than the category average of 1.59%. FSVLX has a Zacks Mutual Fund Rank #1.
Fidelity Select Financial Services Portfolio (FIDSX - Free Report) invests the majority of its assets in common stocks of companies involved in offering financial services to industry and consumers. The fund’s three-month return is 18.4%. Its annual expense ratio of 0.75% lags the category average of 1.59%. FIDSX has a Zacks Mutual Fund Rank #1.
JHancock Regional Bank A (FRBAX - Free Report) invests a lion’s share of its assets in stocks of regional banks and other lending companies, including commercial and industrial banks, savings and loans associations and bank holding companies. The fund’s three-month is 30.1%. Its annual expense ratio of 1.27% is lower than the category average of 1.59%. FRBAX has a Zacks Mutual Fund Rank #2.
Fidelity Advisor Financial Services A (FAFDX - Free Report) invests more than 80% of its assets in securities of companies principally engaged in providing financial services to consumers. The fund’s three-month return is 18.3%. Its annual expense ratio of 1.15% lags the category average of 1.59%. FAFDX has a Zacks Mutual Fund Rank #2.
Want key mutual fund info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>