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3 Financial Mutual Funds to Buy on Rising Interest Rates
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The year 2023 was ushered in by a blockbuster January that had raised hopes about Fed policies finally taking effect, anda the central bank taking cognizance of the fact and planning to pause its rate hikes. However, the vagaries of February, led by robust numbers from the labor, services, and manufacturing sector, and still-high inflation has ensured that the Fed remains steadfast on its warpath with rising prices.
The Fed had started raising rates in March 2022 and had incrementally raised them till the December meeting, where it took stock and brought down the rate of the hike. The general assumption at the time was that there would be a complete pause in rate hikes at a given point time in the first quarter. However, with current economic data showing resilience in key sectors, various Fed officials have come out and stated that further policy tightening would continue for the time being.
As recent as on Mar 7, Fed Chair Jerome Powell warned market participants that recent economic numbers have given the central bank sufficient mandate to raise interest rates more aggressively than expected earlier. “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said in his opening remarks at a hearing before the Senate Banking Committee, adding, “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
When interest rates go up, and it is looking extremely likely that they would continue to do so, banks and other financial institutions generally see higher profitability due to increased lending rates. The gap between such lending rates is considered a long-term asset for banks.
Also, short-term liabilities such as deposits increase and boost net interest margins. Long story cut short, stocks of banks, insurance companies, and other financial institutions go up with continuous interest rate hikes. All eyes are firmly set on the Fed meeting scheduled for later this month and the direction in which it takes the economy toward.
In summary, financial mutual funds provide the much-required growth in a market where interest rate hikes are expected to continue. Hence, astute investors should consider such funds at present. 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).
We have thus selected three financial mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive three-year and five-year annualized returns and minimum initial investments within $5000 as well as carry a low expense ratio. We have also made sure that at least 80% of the fund is invested in the financial sector.
Davis Financial Fund (RPFGX - Free Report) seeks long-term growth of capital by investing the majority of its net assets in common stock issued by companies engaged in providing financial services to consumers and industry. RPFGX offers dividends and capital gains annually.
Christopher Davis has been the lead manager of RPFGX since Dec 31, 2013, and 92% of the fund is invested in the financial sector. Three top holdings for RPFGX are 7.8% in Capital One Financial, 7% in Berkshire Hathaway and 7% in Wells Fargo.
RPFGX’s 3-year and 5-year annualized returns are 8.7% and 5.5%, respectively. Its net expense ratio is 0.95% compared to the category average of 1.08%. RPFGX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Fidelity Advisor Financial Services Fund (FAFDX - Free Report) seeks long-term growth of capital by investing the majority of its net assets in common stocks issued by companies providing financial services to consumers and industry. FAFDX offers dividends and capital gains twice a year, in September and December.
Matt Reed has been the lead manager of FAFDX since May 31, 2019, and 87.2% of the fund is invested in the financial sector. Three top holdings for FAFDX are 5.3% in Bank of America, 5.3% in JPMorgan Chase, and 5.2% in Wells Fargo.
FAFDX’s 3-year and 5-year annualized returns are 10.7% and 7%, respectively. Its net expense ratio is 1.03% compared to the category average of 1.08%. FAFDX has a Zacks Mutual Fund Rank #2.
Fidelity Select Banking Portfolio (FSRBX - Free Report) seeks capital appreciation by investing the majority of its net assets in common stocks of companies principally engaged in banking. For its investment purposes, FSRBX uses fundamental analysis of factors like financial condition and industry position, as well as market and economic conditions. The fund offers dividends and capital gains in April and December.
Matt Reed has been the lead manager of FSRBX since Sep 26, 2016, and 92% of the fund is invested in the financial sector. Three top holdings for FSRBX are 7.5% in Wells Fargo, 6.6% in M&T Bank and 6% in LPL Bank of America.
FSRBX’s 3-year and 5-year annualized returns are 7.3% and 3.7%, respectively. Its net expense ratio is 0.74% compared to the category average of 1.08%. FSRBX has a Zacks Mutual Fund Rank #1.
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3 Financial Mutual Funds to Buy on Rising Interest Rates
The year 2023 was ushered in by a blockbuster January that had raised hopes about Fed policies finally taking effect, anda the central bank taking cognizance of the fact and planning to pause its rate hikes. However, the vagaries of February, led by robust numbers from the labor, services, and manufacturing sector, and still-high inflation has ensured that the Fed remains steadfast on its warpath with rising prices.
The Fed had started raising rates in March 2022 and had incrementally raised them till the December meeting, where it took stock and brought down the rate of the hike. The general assumption at the time was that there would be a complete pause in rate hikes at a given point time in the first quarter. However, with current economic data showing resilience in key sectors, various Fed officials have come out and stated that further policy tightening would continue for the time being.
As recent as on Mar 7, Fed Chair Jerome Powell warned market participants that recent economic numbers have given the central bank sufficient mandate to raise interest rates more aggressively than expected earlier. “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said in his opening remarks at a hearing before the Senate Banking Committee, adding, “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
When interest rates go up, and it is looking extremely likely that they would continue to do so, banks and other financial institutions generally see higher profitability due to increased lending rates. The gap between such lending rates is considered a long-term asset for banks.
Also, short-term liabilities such as deposits increase and boost net interest margins. Long story cut short, stocks of banks, insurance companies, and other financial institutions go up with continuous interest rate hikes. All eyes are firmly set on the Fed meeting scheduled for later this month and the direction in which it takes the economy toward.
In summary, financial mutual funds provide the much-required growth in a market where interest rate hikes are expected to continue. Hence, astute investors should consider such funds at present. 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).
We have thus selected three financial mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), have positive three-year and five-year annualized returns and minimum initial investments within $5000 as well as carry a low expense ratio. We have also made sure that at least 80% of the fund is invested in the financial sector.
Davis Financial Fund (RPFGX - Free Report) seeks long-term growth of capital by investing the majority of its net assets in common stock issued by companies engaged in providing financial services to consumers and industry. RPFGX offers dividends and capital gains annually.
Christopher Davis has been the lead manager of RPFGX since Dec 31, 2013, and 92% of the fund is invested in the financial sector. Three top holdings for RPFGX are 7.8% in Capital One Financial, 7% in Berkshire Hathaway and 7% in Wells Fargo.
RPFGX’s 3-year and 5-year annualized returns are 8.7% and 5.5%, respectively. Its net expense ratio is 0.95% compared to the category average of 1.08%. RPFGX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Fidelity Advisor Financial Services Fund (FAFDX - Free Report) seeks long-term growth of capital by investing the majority of its net assets in common stocks issued by companies providing financial services to consumers and industry. FAFDX offers dividends and capital gains twice a year, in September and December.
Matt Reed has been the lead manager of FAFDX since May 31, 2019, and 87.2% of the fund is invested in the financial sector. Three top holdings for FAFDX are 5.3% in Bank of America, 5.3% in JPMorgan Chase, and 5.2% in Wells Fargo.
FAFDX’s 3-year and 5-year annualized returns are 10.7% and 7%, respectively. Its net expense ratio is 1.03% compared to the category average of 1.08%. FAFDX has a Zacks Mutual Fund Rank #2.
Fidelity Select Banking Portfolio (FSRBX - Free Report) seeks capital appreciation by investing the majority of its net assets in common stocks of companies principally engaged in banking. For its investment purposes, FSRBX uses fundamental analysis of factors like financial condition and industry position, as well as market and economic conditions. The fund offers dividends and capital gains in April and December.
Matt Reed has been the lead manager of FSRBX since Sep 26, 2016, and 92% of the fund is invested in the financial sector. Three top holdings for FSRBX are 7.5% in Wells Fargo, 6.6% in M&T Bank and 6% in LPL Bank of America.
FSRBX’s 3-year and 5-year annualized returns are 7.3% and 3.7%, respectively. Its net expense ratio is 0.74% compared to the category average of 1.08%. FSRBX has a Zacks Mutual Fund Rank #1.
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 >>