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3 Financial Mutual Funds to Buy as Inflation Stays Elevated

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Wall Street continues to give investors positive returns so far this year. However, rising inflation and a strong labor market are key concerns for investors. The rising Consumer Price Index (CPI) implies that there may be further delay in interest rate reduction by the central bank.  

However, the key indexes, the Dow, the S&P 500 and Nasdaq, have returned 3.6%, 8.3% and 7.8%, respectively, in the year-to-date period.

The CPI, which is the most accepted gauge for inflation, rose 0.4% in the month of February. Though the month-on-month increase is in line with expectations, the annual rate of 3.2% was slightly higher than the street expectation of 3.1%. The labor market is also strong as the Job Openings and Labor Turnover Survey (JOLTS) report published by the Department of Labor showed that there were 1.45 jobs for every unemployed person in January, up from 1.42 in December.

By keeping interest rates high,the Federal Reserve intends to get rid of the sticky inflation and slowdown in growth and, at the same time, create a soft landing for the economy. To meet its ambitious inflation target of 2%, the current interest rate has been kept in the range of 5.25-5.5%, the highest level since 2001. Though the Fed Chairman’s dovish comments before the Senate suggest that the central bank is likely to initiate interest rate reduction this year, the timeline for the rate cut is most likely to be delayed as the Fed will probably stretch the high interest rates for longer towin the inflation battle.

Higher interest rates mostly benefit brokerages, 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 can charge higher interest rates for loans and pay lower interest rates to depositors.

Thus, from an investment standpoint, we have selected three 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 have impressive 3-year and 5-year returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio of 1% or less.

Fidelity Select Brokerage & Investment (FSLBX - Free Report) invests most of its net assets in securities of companies 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 and financial decision support services. FSLBX advisors invest in both domestic and foreign companies.

Pierre Sorel has been the lead manager of FSLBX since Apr 4, 2023, and most of the fund’s holdings were in companies like Moody’s (8%), S&P Global (6.3%) and Black Rock (6.1%) as of Nov 30, 2023.

FSLBX’s three-year and five-year annualized returns are almost 13.9% and 17.6%, respectively. FSLBX has an annual expense ratio of 0.76%.

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

Fidelity Select Financial Services Portfolio (FIDSX - Free Report) invests most of its net assets in common stocks of domestic and foreign companies that are principally engaged in providing financial services to consumers and industry. FIDSX 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.

Matt Reed has been the lead manager of FIDSX since May 31, 2019, and most of the fund’s holdings were in companies like Mastercard (6.8%), Wells Fargo (8.9%) and Bank of America (6.5%) as of Nov 30, 2023.

FIDSX’s three-year and five-year returns are 9.9% and 12%, respectively. FIDSX has an annual expense ratio is 0.76%.

T. Rowe Price Financial Services Fund, Inc. (PRISX - Free Report) seeks long-term capital growth by investing most of its net assets in companies engaged in the financial services industry. PRISX may also invest in companies having substantial revenues from business within the financial services sector.

Matt J. Snowling has been the lead manager of PRISX since Jun 30, 2021,and most of the fund’s holdings were in companies like Bank of America (5.4%), Wells Fargo (5%) and Chubb (4.4%) as of Dec 31, 2023.

PRISX’s three-year and five-year annualized returns are almost 9.6% and 12.7%, respectively. PRISXhas an annual expense ratio of 0.83%.

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