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3 Buy-Rated Finance Mutual Funds in Case Rates March Higher
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Financials have been on a tear since the beginning of this year, gaining 2.9% following optimism over a higher rate environment, strong economic growth and President Trump’s policies. At the end of its policy meeting held earlier this month, the Fed decided to increase its key interest rate and signalled two more rate increases in 2017. Moreover, with key Fed officials indicating two to three additional rate hikes this year, the prospects for the financial sector improved.
Additionally, President Trump’s financial de-regulation policies are also expected to benefit financial stocks. In this respect, mutual funds which have significant exposure in the financial sector are expected to be a strong investment choice as key interest rates are likely to march higher in the near future.
Q4 GDP Advanced in “Third Estimate”
According to the Department of Commerce’s third estimate, fourth-quarter GDP increased to 2.1% from the previous estimate of 1.9%. One of the key factors responsible for the increase is a rise in consumer spending, which accounts for more than two-thirds of total domestic economic activity. Notably, consumer spending was revised upward from 3% to 3.5%.
A tighter labor market contributed to the gains in overall consumer spending. Additionally, domestic demand surged 3.4% in the last quarter of 2016, reflecting its fastest pace in the last two years, which also benefited the economy. Gradual expansion in the economy is expected to support a relatively tighter rate environment. The data-dependent Fed is likely to get a nudge from stable economic growth.
High Rate Environment Benefits Financials
Following its two-day Federal Open Market Committee (FOMC) policy meeting held on March 14–15, the Federal Reserve decided to raise its key interest rate by 25 basis points. The central bank raised its key rate for the first time this year and for the third time in a decade. Moreover, the Fed also expects two additional rate hikes this year. Additionally, the Fed expects key interest rate to be around 1.4% by the end of 2017.
Earlier this month, several major Fed policy makers showed their support to two more rate hikes, while some even signaled three increases this year. Fed Vice Chairman Stanley Fischer said that more rate hikes this year seem “about right.” Fischer added that the Fed is closely watching recent economic developments in President Trump’s administration as these will most likely impact the Fed’s future actions.
Additionally, two Fed officials emphasized that the interest rate should be increased at a faster pace than discussed in a recent policy statement. Boston Fed President Eric Rosengren believes that three more rate increases might be necessary to overcome economic overheating. Rosegren added that the FOMC should increase key interest rates in the Fed’s policy meetings in June, September and December, provided economic data remains upbeat. Also, San Francisco Fed John Williams believes that more than three rate increases might be possible this year.
Adding his voice to this chorus, New York Fed President William Dudley stated that further rate hikes are necessary this year to overcome overheating as the economy is moving toward full employment and the 2% inflation target. Further, St. Louis Fed President James Bullard also supports at least one more rate hike this year.
Trump’s De-Regulation Policies to Look
Although, President Trump’s healthcare bill hit a roadblock recently, investors still have their hopes pinned on his financial de-regulation policies. Trump is expected to repeal parts of the Dodd-Frank Act, which has for a considerable period of time limited operational flexibility of financial companies.
The Trump administration might also reduce the scope of the Financial Stability Oversight Council (FSOC), which serves as a watchdog for the big players in the economy. Moreover, the 1933 Glass-Steagall act, which focused on the division of investment and commercial banking, might be re-introduced by Trump. The President’s promise to implement significant tax cuts is another positive development. Accompanied by a tighter rate environment, these factors are likely to boost the sector’s profits significantly.
Buy These 3 Financial Mutual Funds
The financial sector performed favorably in recent times following the Fed’s interest rate hikes and Trump’s proposed economic policies. Market watchers believe that this rally will continue if rates march higher. Financial Select Sector SPDR (XLF - Free Report) advanced 24% in the last six months. According to Morningstar, the financial mutual fund category posted year-to-date (YTD) and one-year returns of 2.5% and 28.1%, respectively.
This encouraging backdrop warrants investor focus on three financial mutual fundsthat boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have impressive year-to-date (YTD) and one-year annualized returns. They also have minimum initial investment within $5000 and low expense ratios.
We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the 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.
Fidelity Advisor Financial Services A (FAFDX - Free Report) invests a major portion of its assets in securities of companies principally engaged in providing financial services to consumers. FAFDX seeks growth of capital. The fund invests both in U.S. and non-U.S. financial companies, by measuring their industry position and financial condition.
The fund has a one-year annualized return of 25.5%, and an expense ratio of 1.15% compared with the category average of 1.51%.FAFDX has a Zacks Mutual Fund Rank #1.
Emerald Banking and Finance Investor (FFBFX - Free Report) invests a large portion of its assets in stocks of companies principally engaged in the banking or financial services industries. FFBFX seeks appreciation of capital and income for the long run. The fund generally invests in small and mid-cap financial companies, whose market cap is more than $1.5 billion.
The one-year annualized return of the fund is 37.1%. Its expense ratio is 1.48% compared with the category average of 1.51%.FFBFX has a Zacks Mutual Fund Rank #1.
Fidelity Select Banking (FSRBX - Free Report) seeks appreciation of capital. FSRBX normally invests at least 80% of assets in common stocks of companies principally involved in banking. The fund invests in both U.S. and non-U.S. companies.
FSRBX has a one-year annualized return of 38.2%, and an expense ratio of 0.79% compared with the category average of 1.51%. FSRBX has a Zacks Mutual Fund Rank #2.
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3 Buy-Rated Finance Mutual Funds in Case Rates March Higher
Financials have been on a tear since the beginning of this year, gaining 2.9% following optimism over a higher rate environment, strong economic growth and President Trump’s policies. At the end of its policy meeting held earlier this month, the Fed decided to increase its key interest rate and signalled two more rate increases in 2017. Moreover, with key Fed officials indicating two to three additional rate hikes this year, the prospects for the financial sector improved.
Additionally, President Trump’s financial de-regulation policies are also expected to benefit financial stocks. In this respect, mutual funds which have significant exposure in the financial sector are expected to be a strong investment choice as key interest rates are likely to march higher in the near future.
Q4 GDP Advanced in “Third Estimate”
According to the Department of Commerce’s third estimate, fourth-quarter GDP increased to 2.1% from the previous estimate of 1.9%. One of the key factors responsible for the increase is a rise in consumer spending, which accounts for more than two-thirds of total domestic economic activity. Notably, consumer spending was revised upward from 3% to 3.5%.
A tighter labor market contributed to the gains in overall consumer spending. Additionally, domestic demand surged 3.4% in the last quarter of 2016, reflecting its fastest pace in the last two years, which also benefited the economy. Gradual expansion in the economy is expected to support a relatively tighter rate environment. The data-dependent Fed is likely to get a nudge from stable economic growth.
High Rate Environment Benefits Financials
Following its two-day Federal Open Market Committee (FOMC) policy meeting held on March 14–15, the Federal Reserve decided to raise its key interest rate by 25 basis points. The central bank raised its key rate for the first time this year and for the third time in a decade. Moreover, the Fed also expects two additional rate hikes this year. Additionally, the Fed expects key interest rate to be around 1.4% by the end of 2017.
Earlier this month, several major Fed policy makers showed their support to two more rate hikes, while some even signaled three increases this year. Fed Vice Chairman Stanley Fischer said that more rate hikes this year seem “about right.” Fischer added that the Fed is closely watching recent economic developments in President Trump’s administration as these will most likely impact the Fed’s future actions.
Additionally, two Fed officials emphasized that the interest rate should be increased at a faster pace than discussed in a recent policy statement. Boston Fed President Eric Rosengren believes that three more rate increases might be necessary to overcome economic overheating. Rosegren added that the FOMC should increase key interest rates in the Fed’s policy meetings in June, September and December, provided economic data remains upbeat. Also, San Francisco Fed John Williams believes that more than three rate increases might be possible this year.
Adding his voice to this chorus, New York Fed President William Dudley stated that further rate hikes are necessary this year to overcome overheating as the economy is moving toward full employment and the 2% inflation target. Further, St. Louis Fed President James Bullard also supports at least one more rate hike this year.
Trump’s De-Regulation Policies to Look
Although, President Trump’s healthcare bill hit a roadblock recently, investors still have their hopes pinned on his financial de-regulation policies. Trump is expected to repeal parts of the Dodd-Frank Act, which has for a considerable period of time limited operational flexibility of financial companies.
The Trump administration might also reduce the scope of the Financial Stability Oversight Council (FSOC), which serves as a watchdog for the big players in the economy. Moreover, the 1933 Glass-Steagall act, which focused on the division of investment and commercial banking, might be re-introduced by Trump. The President’s promise to implement significant tax cuts is another positive development. Accompanied by a tighter rate environment, these factors are likely to boost the sector’s profits significantly.
Buy These 3 Financial Mutual Funds
The financial sector performed favorably in recent times following the Fed’s interest rate hikes and Trump’s proposed economic policies. Market watchers believe that this rally will continue if rates march higher. Financial Select Sector SPDR (XLF - Free Report) advanced 24% in the last six months. According to Morningstar, the financial mutual fund category posted year-to-date (YTD) and one-year returns of 2.5% and 28.1%, respectively.
This encouraging backdrop warrants investor focus on three financial mutual fundsthat boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have impressive year-to-date (YTD) and one-year annualized returns. They also have minimum initial investment within $5000 and low expense ratios.
We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the 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.
Fidelity Advisor Financial Services A (FAFDX - Free Report) invests a major portion of its assets in securities of companies principally engaged in providing financial services to consumers. FAFDX seeks growth of capital. The fund invests both in U.S. and non-U.S. financial companies, by measuring their industry position and financial condition.
The fund has a one-year annualized return of 25.5%, and an expense ratio of 1.15% compared with the category average of 1.51%.FAFDX has a Zacks Mutual Fund Rank #1.
Emerald Banking and Finance Investor (FFBFX - Free Report) invests a large portion of its assets in stocks of companies principally engaged in the banking or financial services industries. FFBFX seeks appreciation of capital and income for the long run. The fund generally invests in small and mid-cap financial companies, whose market cap is more than $1.5 billion.
The one-year annualized return of the fund is 37.1%. Its expense ratio is 1.48% compared with the category average of 1.51%.FFBFX has a Zacks Mutual Fund Rank #1.
Fidelity Select Banking (FSRBX - Free Report) seeks appreciation of capital. FSRBX normally invests at least 80% of assets in common stocks of companies principally involved in banking. The fund invests in both U.S. and non-U.S. companies.
FSRBX has a one-year annualized return of 38.2%, and an expense ratio of 0.79% compared with the category average of 1.51%. FSRBX has a Zacks Mutual Fund Rank #2.
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 >>