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3 Financial Mutual Funds to Buy While Interest Rates Remain High
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The Federal Reserve started raising interest rates in March 2022 to tackle decades-high inflation. It continued on the path for 10 straight policy meetings before finally opting for a rate pause in June 2023.
Since then, economic indicators across sectors have been suggesting that the Fed’s tight monetary policy decisions were taking effect. Inflation numbers were also suggesting a gradual slowdown. The Fed had finally taken cognizance and barely raised rates till the end of the year while promising at least three rate cuts in 2024.
However, while we are well into 2024, inflation continues to hold off against the central bank’s targeted policy measures and remains at a yet disconcerting level. Fed Chair Jerome Powell has continued to suggest that he is fairly certain of rate cuts this year, but the Fed would embark on that journey only after reviewing further data.
First, there was a market sentiment that the first-rate cut would be in March itself, but it is highly unlikely there would be one before June. It is increasingly becoming clear that interest rates are going to remain higher for longer. When interest rates remain high, 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. Stocks of banks, insurance companies and other financial institutions go up with continuous interest rate hikes. As a result, the S&P 500 Financials Select Sector SPDR (XLF) has gone up 8% year to date as of Mar 6.
Also, the banking sector is about to bag a major regulatory victory after Jerome Powell signaled recently that the central bank would scale back plans to make them hold more capital.
For these reasons, financial mutual funds might provide much-required stability in a high-rate environment market. 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.
Davis Financial (RPFGX - Free Report) seeks long-term growth of capital by investing the majority of its net assets in common stocks issued by companies engaged in providing financial services to consumers and industry. RPFGX offers dividends and capital gains annually.
Christopher Cullom Davis has been the lead manager of RPFGX since December 2013, and 91% of the fund is invested in the financial sector. Three top holdings for RPFGX are 9.4% in Capital One Financial, 7.6% in Wells Fargo and 7.2% in JPMorgan Chase.
RPFGX’s 3-year and 5-year annualized returns are 12.5% and 9.2%, respectively. Its net expense ratio is 0.96%. 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 Select Financials Portfolio (FIDSX - 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. FIDSX offers dividends and capital gains twice a year, in September and December.
Matt Reed has been the lead manager of FIDSX since May 2019, and 78.6% of the fund is invested in the financial sector. Three top holdings for FIDSX are 9.8% in Mastercard, 8.9% in Wells Fargo and 6.5% in Bank of America.
FIDSX’s 3-year and 5-year annualized returns are 12.8% and 11.9%, respectively. Its net expense ratio is 0.76% compared to the category average of 1.24%. FIDSX has a Zacks Mutual Fund Rank #1.
Fidelity Select Brokerage & Investment Management (FSLBX - Free Report) invests in securities of companies principally engaged in the exchange of financial instruments, stock brokerage, commodity brokerage, investment banking, or related investment advisory and financial decision support services. FSLBX invests primarily in common stocks.
Pierre Sorel has been the lead manager of FSLBX since April 2023, and 74.6% of the fund is invested in the financial sector. Three top holdings for FSLBX are 8% in Moody’s, 6.3% in S&P Global, and 6.1% in BlackRock.
FSLBX’s 3-year and 5-year annualized returns are 14.3% and 16.8%, respectively. Its net expense ratio is 0.76% compared to the category average of 1.24%. FSLBX has a Zacks Mutual Fund Rank #1.
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3 Financial Mutual Funds to Buy While Interest Rates Remain High
The Federal Reserve started raising interest rates in March 2022 to tackle decades-high inflation. It continued on the path for 10 straight policy meetings before finally opting for a rate pause in June 2023.
Since then, economic indicators across sectors have been suggesting that the Fed’s tight monetary policy decisions were taking effect. Inflation numbers were also suggesting a gradual slowdown. The Fed had finally taken cognizance and barely raised rates till the end of the year while promising at least three rate cuts in 2024.
However, while we are well into 2024, inflation continues to hold off against the central bank’s targeted policy measures and remains at a yet disconcerting level. Fed Chair Jerome Powell has continued to suggest that he is fairly certain of rate cuts this year, but the Fed would embark on that journey only after reviewing further data.
First, there was a market sentiment that the first-rate cut would be in March itself, but it is highly unlikely there would be one before June. It is increasingly becoming clear that interest rates are going to remain higher for longer. When interest rates remain high, 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. Stocks of banks, insurance companies and other financial institutions go up with continuous interest rate hikes. As a result, the S&P 500 Financials Select Sector SPDR (XLF) has gone up 8% year to date as of Mar 6.
Also, the banking sector is about to bag a major regulatory victory after Jerome Powell signaled recently that the central bank would scale back plans to make them hold more capital.
For these reasons, financial mutual funds might provide much-required stability in a high-rate environment market. 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.
Davis Financial (RPFGX - Free Report) seeks long-term growth of capital by investing the majority of its net assets in common stocks issued by companies engaged in providing financial services to consumers and industry. RPFGX offers dividends and capital gains annually.
Christopher Cullom Davis has been the lead manager of RPFGX since December 2013, and 91% of the fund is invested in the financial sector. Three top holdings for RPFGX are 9.4% in Capital One Financial, 7.6% in Wells Fargo and 7.2% in JPMorgan Chase.
RPFGX’s 3-year and 5-year annualized returns are 12.5% and 9.2%, respectively. Its net expense ratio is 0.96%. 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 Select Financials Portfolio (FIDSX - 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. FIDSX offers dividends and capital gains twice a year, in September and December.
Matt Reed has been the lead manager of FIDSX since May 2019, and 78.6% of the fund is invested in the financial sector. Three top holdings for FIDSX are 9.8% in Mastercard, 8.9% in Wells Fargo and 6.5% in Bank of America.
FIDSX’s 3-year and 5-year annualized returns are 12.8% and 11.9%, respectively. Its net expense ratio is 0.76% compared to the category average of 1.24%. FIDSX has a Zacks Mutual Fund Rank #1.
Fidelity Select Brokerage & Investment Management (FSLBX - Free Report) invests in securities of companies principally engaged in the exchange of financial instruments, stock brokerage, commodity brokerage, investment banking, or related investment advisory and financial decision support services. FSLBX invests primarily in common stocks.
Pierre Sorel has been the lead manager of FSLBX since April 2023, and 74.6% of the fund is invested in the financial sector. Three top holdings for FSLBX are 8% in Moody’s, 6.3% in S&P Global, and 6.1% in BlackRock.
FSLBX’s 3-year and 5-year annualized returns are 14.3% and 16.8%, respectively. Its net expense ratio is 0.76% compared to the category average of 1.24%. FSLBX 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 >>