The Federal Reserve’s March FOMC meeting will take place in less than 10 days and it is unlikely that the central bank will go for the first rate cut. The Federal Reserve, despite hinting at multiple interest rate cuts this year, said in January that a rate cut in March is unlikely as inflation remains above its 2% target.

Inflation has declined sharply from its peak of 9.1% in June 2022 but is still above 3%. The consumer price index (CPI) rose 3.1% in January, which dimmed hopes of a rate cut anytime soon.

The Federal Reserve started hiking interest rates in March 2022 and went ahead with 10 straight increases before halting for the first time in June 2023. So far, the central bank has hiked interest rates by 525 basis points to take its benchmark policy rate to the range of 5.25-5.5% before finally hinting at ending its monetary tightening campaign at the end of last year.

A hint at cutting interest rates followed soon but the optimism has faded over the past month as inflation remains high. Federal Reserve Chair Jerome Powell has said that he is certain about rate cuts this year but central bank officials will take a decision only after reviewing further data.

January’s inflation data has now dimmed hopes of a rate cut even in May and many market participants believe that the first of the rate cuts won’t happen before the Fed’s June FOMC meeting.

Banks and other financial institutions benefit the most during such a situation as it leads to higher profitability owing to increased lending rates.

The disparity between lending rates is regarded as a long-term asset for banks. Also, short-term liabilities, such as deposits increase, contributing to a rise in net interest margins. This, in turn, results in a positive impact on the stocks of banks, insurance companies, and other financial institutions, especially with a sustained series of interest rate hikes.

3 Best Choices

We have, thus, selected three financial mutual funds, namelyFidelity Select Brokerage & Inv Mgmt (FSLBX Quick QuoteFSLBX - Free Report) , T. Rowe Price Financial Services (PRISX Quick QuotePRISX - Free Report) and Fidelity Select Fintech Port (FSVLX Quick QuoteFSVLX - Free Report) , carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) that are poised to gain from the higher interest rate scenario. Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors in identifying potential winners and losers. Unlike most 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.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Fidelity Select Brokerage & Inv Mgmt fund 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.

Fidelity Select Brokerage & Inv Mgmt fund has a track of positive total returns for over 10 years. Specifically, FSLBX’s returns over the three and five-year benchmarks are 14.3% and 16.8%, respectively. The annual expense ratio of 0.76% is lower than the category average of 1.24%. FSLBX has a Zacks Mutual Fund Rank #1.

To see how this fund performed compared to its category, and other #1 or 2 Ranked Mutual Funds, please click here.

T. Rowe Price Financial Services fund invests most of its assets, along with borrowings, if any, in common stocks of financial services companies and others conducting business in the financial services industry, such as financial software providers. PRISX advisors select stocks based on companies’ fundamental and bottom-up analysis that seeks quality companies with good appreciation prospects.

T. Rowe Price Financial Services fund has a track of positive total returns for over 10 years. Specifically, PRISX’s returns over the three and five-year benchmarks are 13% and 12.6%, respectively. The annual expense ratio of 0.83% is lower than the category average of 1.10%. PRISX has a Zacks Mutual Fund Rank #1.

To see how this fund performed compared to its category, and other #1 or 2 Ranked Mutual Funds, please click here.

Fidelity Select Fintech Port fund seeks capital appreciation. FSVLX normally invests at least 80% of assets in common stocks of companies principally engaged in investing in real estate, usually through mortgages and other consumer-related loans.

Fidelity Select Fintech Port fund has a track of positive total returns for over 10 years. Specifically, FSVLX’s returns over the three and five-year benchmarks are 13.5% and 6%, respectively. The annual expense ratio of 0.89% is lower than the category average of 1.24%. FSVLX has a Zacks Mutual Fund Rank #2.

To see how this fund performed compared to its category, and other #1 or 2 Ranked Mutual Funds, please click here.

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