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4 Financial Mutual Funds to Gain From Hawkish Fed Expectations
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Investor sentiment remains cautious in the United States as the rate of decline in inflation changed its course. The Consumer Price Index, which is the most accepted gauge for inflation, rose 0.5% for the month of January compared with a slower gain of 0.1% in December.
With this, the price of goods and services rose by 6.4% over the past 12 months, and such an increase was mostly due to a rise in the prices of shelter, food, and energy. The Dow, the S&P 500, and the Nasdaq continued to post a negative return of 0.26%, 5.55%, and 11.74%, respectively, over the past year.
Domestic inflation, which began to swell in October 2021, remains the most dominant threat to the U.S. economy. In the month of January, more than half a million jobs were added despite high inflation, rising interest rates, and weakening economic prospects. Retail sales in the said period grew at 3.0%, which is the maximum in two years despite higher borrowing costs. Such solid economic data are surely expected to increase the prices of indispensable commodities.
Federal Reserve officials, in the most recent meeting, indicated that the need for more interest rate hike prevails. Aligned with market expectations, the Fed recently approved a 0.25 basis point hike in interest rates. Following a similar stance against inflation, Fed is likely to keep raising interest rates to dry out excess liquidity in the system.
Higher interest rates mostly benefit brokerages, insurance companies, financial services, commercial banks and regional banks. The period of higher interest rates serves as a good source of revenues for the banking and financial services industry.
The banks could charge higher interest rates for loans and pay lower interest rates to depositors. Insurance companies tend to benefit from higher interest as a rising interest rate environment is likely to earn improved spreads over the cost of funding liabilities.
Thus, from an investment standpoint, we have selected four financial mutual funds that are expected to give a positive return amid the rise in inflation. Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
These funds, by the way, have given impressive 3-year and 5-year returns as well, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or Rank 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio compared to the category average.
Fidelity Select Brokerage & Investment Management (FSLBX - Free Report) invests most of its net assets in companies that are engaged in the exchange of financial instruments, stock brokerage, commodity brokerage, investment banking, tax-advantaged investment or investment sales, investment management, or related investment advisory services. FSLBX advisors generally invest in common stocks of domestic and foreign issuers.
Charlie Ackerman has been the lead manager of FSLBX since Nov 1, 2018, and most of the fund’s holdings were in companies like S&P Global (5.98%), Blackrock (5.83%), and LPL Financial Holdings (5.68%) as of Aug 31, 2022.
FSLBX’s 3-year and 5-year returns are 15.2% and 10.8%, respectively. The annual expense ratio is 0.76% compared to the category average of 1.08%. FSLBX has a Zacks Mutual Fund Rank #1.
To see how this fund performed compared to its category and other 1 and 2 Ranked Mutual Funds, please click here.
Fidelity Select Insurance Portfolio (FSPCX - Free Report) invests most of its net assets in common stocks of domestic and foreign companies that are principally engaged in underwriting, reinsuring, selling, distributing, or placing of property and casualty, life, or health insurance. FSPCX advisors choose to invest in stocks based on fundamental analysis factors such as the issuer's financial condition, industry position, as well as market and economic conditions.
Christopher Cullom Davis has been the lead manager of FSPCX since Jan 1, 2014, and most of the fund’s holdings were in companies like Marsh & Mclennan (10.9%), The Travelers Companies (8.72%), and Chubb (7.52%) as of Aug 31, 2022.
FSPCX’s 3-year and 5-year returns are 13.2% and 10.0%, respectively. The annual expense ratio of 0.83% is lower than the category average of 1.08%. FSPCX has a Zacks Mutual Fund Rank #1.
Davis Financial Fund (DFFCX - Free Report) invests most of its net assets, along with borrowings, if any, in securities issued by companies principally engaged in the financial services sector using the Davis Investment Discipline. RPFGX advisors may invest in the indirect holdings of common stock through depositary receipts.
Christopher Cullom Davis has been the lead manager of DFFCXsince Jan 1, 2014, and most of the fund’s holdings were in companies like Capital One Financial (7.75%), Berkshire Hathaway (7.03%) and Wells Fargo (7.03%) as of Sep 30, 2022.
DFFCX’s 3-year and 5-year returns are 7.9% and 4.7%, respectively. The annual expense ratio is 0.70% compared to the category average of 1.08%. DFFCX has a Zacks Mutual Fund Rank #2.
John Hancock Regional Bank Fund (FRBAX - Free Report) invests most of its net assets in equity securities of commercial banks, industrial banks, savings and loan associations, and financial and bank holding companies, irrespective of their size. FRBAX advisors may also invest a small portion of their net assets in domestic and foreign financial services companies, stocks of companies outside the financial services sector,and below-investment-grade bonds rated as low as CCC.
Susan A. Curry has been the lead manager of FRBAX since May 1, 2006, and most of the fund’s holdings were in companies like M&T Bank Corporation (3.12%), Huntington Bancshares (2.93%) and Regions Financial (2.89%) as of Oct 31, 2022.
FRBAX’s 3-year and 5-year returns are 7.7% and 2.8%, respectively. The annual expense ratio is 0.82% compared to the category average of 1.08%. FRBAX has a Zacks Mutual Fund Rank #2.
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4 Financial Mutual Funds to Gain From Hawkish Fed Expectations
Investor sentiment remains cautious in the United States as the rate of decline in inflation changed its course. The Consumer Price Index, which is the most accepted gauge for inflation, rose 0.5% for the month of January compared with a slower gain of 0.1% in December.
With this, the price of goods and services rose by 6.4% over the past 12 months, and such an increase was mostly due to a rise in the prices of shelter, food, and energy. The Dow, the S&P 500, and the Nasdaq continued to post a negative return of 0.26%, 5.55%, and 11.74%, respectively, over the past year.
Domestic inflation, which began to swell in October 2021, remains the most dominant threat to the U.S. economy. In the month of January, more than half a million jobs were added despite high inflation, rising interest rates, and weakening economic prospects. Retail sales in the said period grew at 3.0%, which is the maximum in two years despite higher borrowing costs. Such solid economic data are surely expected to increase the prices of indispensable commodities.
Federal Reserve officials, in the most recent meeting, indicated that the need for more interest rate hike prevails. Aligned with market expectations, the Fed recently approved a 0.25 basis point hike in interest rates. Following a similar stance against inflation, Fed is likely to keep raising interest rates to dry out excess liquidity in the system.
Higher interest rates mostly benefit brokerages, insurance companies, financial services, commercial banks and regional banks. The period of higher interest rates serves as a good source of revenues for the banking and financial services industry.
The banks could charge higher interest rates for loans and pay lower interest rates to depositors. Insurance companies tend to benefit from higher interest as a rising interest rate environment is likely to earn improved spreads over the cost of funding liabilities.
Thus, from an investment standpoint, we have selected four financial mutual funds that are expected to give a positive return amid the rise in inflation. Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
These funds, by the way, have given impressive 3-year and 5-year returns as well, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or Rank 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio compared to the category average.
Fidelity Select Brokerage & Investment Management (FSLBX - Free Report) invests most of its net assets in companies that are engaged in the exchange of financial instruments, stock brokerage, commodity brokerage, investment banking, tax-advantaged investment or investment sales, investment management, or related investment advisory services. FSLBX advisors generally invest in common stocks of domestic and foreign issuers.
Charlie Ackerman has been the lead manager of FSLBX since Nov 1, 2018, and most of the fund’s holdings were in companies like S&P Global (5.98%), Blackrock (5.83%), and LPL Financial Holdings (5.68%) as of Aug 31, 2022.
FSLBX’s 3-year and 5-year returns are 15.2% and 10.8%, respectively. The annual expense ratio is 0.76% compared to the category average of 1.08%. FSLBX has a Zacks Mutual Fund Rank #1.
To see how this fund performed compared to its category and other 1 and 2 Ranked Mutual Funds, please click here.
Fidelity Select Insurance Portfolio (FSPCX - Free Report) invests most of its net assets in common stocks of domestic and foreign companies that are principally engaged in underwriting, reinsuring, selling, distributing, or placing of property and casualty, life, or health insurance. FSPCX advisors choose to invest in stocks based on fundamental analysis factors such as the issuer's financial condition, industry position, as well as market and economic conditions.
Christopher Cullom Davis has been the lead manager of FSPCX since Jan 1, 2014, and most of the fund’s holdings were in companies like Marsh & Mclennan (10.9%), The Travelers Companies (8.72%), and Chubb (7.52%) as of Aug 31, 2022.
FSPCX’s 3-year and 5-year returns are 13.2% and 10.0%, respectively. The annual expense ratio of 0.83% is lower than the category average of 1.08%. FSPCX has a Zacks Mutual Fund Rank #1.
Davis Financial Fund (DFFCX - Free Report) invests most of its net assets, along with borrowings, if any, in securities issued by companies principally engaged in the financial services sector using the Davis Investment Discipline. RPFGX advisors may invest in the indirect holdings of common stock through depositary receipts.
Christopher Cullom Davis has been the lead manager of DFFCXsince Jan 1, 2014, and most of the fund’s holdings were in companies like Capital One Financial (7.75%), Berkshire Hathaway (7.03%) and Wells Fargo (7.03%) as of Sep 30, 2022.
DFFCX’s 3-year and 5-year returns are 7.9% and 4.7%, respectively. The annual expense ratio is 0.70% compared to the category average of 1.08%. DFFCX has a Zacks Mutual Fund Rank #2.
John Hancock Regional Bank Fund (FRBAX - Free Report) invests most of its net assets in equity securities of commercial banks, industrial banks, savings and loan associations, and financial and bank holding companies, irrespective of their size. FRBAX advisors may also invest a small portion of their net assets in domestic and foreign financial services companies, stocks of companies outside the financial services sector,and below-investment-grade bonds rated as low as CCC.
Susan A. Curry has been the lead manager of FRBAX since May 1, 2006, and most of the fund’s holdings were in companies like M&T Bank Corporation (3.12%), Huntington Bancshares (2.93%) and Regions Financial (2.89%) as of Oct 31, 2022.
FRBAX’s 3-year and 5-year returns are 7.7% and 2.8%, respectively. The annual expense ratio is 0.82% compared to the category average of 1.08%. FRBAX has a Zacks Mutual Fund Rank #2.
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Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>