Amid high volatility, major U.S. indexes like the Dow, the S&P 500 and the Nasdaq have managed to stay positive with 1.4%, 6.2% and 5.5% gains, respectively, over the year-to-date period. Investors are concerned about domestic inflation, which rose for the third straight month in March, and the slowest economic growth in nearly two years.

The Consumer Price Index (CPI), which is the most accepted gauge for inflation, saw the biggest rise in the past six months. Inflation for the month of March rose 3.5% year on year against 3.2% in February, mostly due to a rise in the cost of gasoline and shelter.

The growth of the U.S. economy for the quarter between January to March 2024 was 1.6% against Wall Street’s expectation of 2.4%, the slowest in nearly two years. The slowdown in the momentum of Gross Domestic Product was mostly due to a sharp rise in inflation that led to a cool-off in consumer and government spending.

In the current situation, the challenge for the Federal Reserve will be to strike the right balance between high interest rates, win the inflation battle and create a soft landing for the economy. The central bank, in its last meeting, kept the overnight interest rate unchanged in the range of 5.25-5.5%, which is the highest since 2001.

Though the Fed’s chairman, Jerome Powell, hinted at three rate cuts in 2024 despite sticky inflation, the current situation undermines such a possibility in the near future. Till there is further evidence of declining inflation, 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.

Amid high interest rates, banking sector institutions, such as retail banks, commercial banks, investment banks, insurance companies and brokerages that have cash holdings from customers and business activities, should see higher profitability due to increased lending rates. This will eventually increase their earnings and lead to higher spreads between the federal overnight fund rate and the rate the banks charge their customers.

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 have impressive three-year and five-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 less than 1%.

Fidelity Select Insurance Portfolio (FSPCX Quick QuoteFSPCX - Free Report) fund invests most of its net assets in common stocks of domestic and foreign companies that are engaged in underwriting, reinsuring, selling, distributing, or placing property and casualty, life, or health insurance. FSPCX advisors choose to invest in stocks based on fundamental analysis factors like financial condition and industry position, along with market and economic conditions.

Fahim Razzaque has been the lead manager of FSPCX since Jul 13, 2022. Most of the fund’s exposure is in companies like Marsh & Mclennan (11.3%), Chubb (9.8%) and The Travelers Companies (7.9%) as of Nov 30, 2023.

FSPCX has three-year and five-year annualized returns of 18.6% and 16.4%, respectively. FSPCX has an annual expense ratio of 0.80%.

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

Fidelity Select Brokerage & Investment (FSLBX Quick QuoteFSLBX - 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 Feb 29, 2024, 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 13.4% and 19.3%, respectively. FSLBX has an annual expense ratio of 0.76%.

T. Rowe Price Financial Services Fund, Inc. (PRISX Quick QuotePRISX - 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 likeBank 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 9.9% and 14.6%, respectively. PRISX has an annual expense ratio of 0.83%.

Fidelity Select Financial Services Portfolio (FIDSX Quick QuoteFIDSX - 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 (9.8%), Wells Fargo (8.9%) and Bank of America (6.5%) as of Nov 30, 2023.

FIDSX’s three-year and five-year returns are 9.5% and 13.8%, respectively. FIDSX has an annual expense ratio is 0.76%.

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