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3 Financial Mutual Funds to Ride the Financial Sector Momentum
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The U.S. financial sector in 2025 has been marked by resilience and renewed investor enthusiasm, largely reflecting the interplay between solid earnings, capital markets activity and evolving monetary policy. The Financial Select Sector SPDR Fund (XLF) has gained 11.5% year to date, as of Sept. 3. Strong returns from major banks and diversified financial institutions have underpinned this performance, as net interest income has remained healthy while trading and investment banking revenues rebounded following a volatile 2024.
The dominant factor shaping the outlook for financials this year has been the Federal Reserve’s interest rate policy. After a considerably long period of maintaining a higher-for-longer stance, the Fed has signaled the beginning of a gradual easing cycle, citing cooling inflation and a more balanced labor market. For banks, this shift is double-edged. Elevated rates during 2023 and 2024 boosted net interest margins, allowing lenders to generate robust income from their loan books. However, high borrowing costs curtailed credit demand and weighed on consumer sentiment. The anticipated rate cuts starting this month are expected to revive loan growth and stimulate capital markets activity.
Looking ahead, the sector’s trajectory will depend on the Fed’s pace of easing and the broader macroeconomic environment. A steady but cautious reduction in policy rates could provide the sweet spot, enough to stimulate lending and consumer spending without reigniting inflationary pressures. On the other hand, if the Fed cuts rates too aggressively in response to economic softness, investors may begin to question the quality of loan portfolios.
For now, confidence remains intact. The sector’s consistent performance highlights market conviction that U.S. banks are entering this new phase of monetary policy from a position of strength. For these reasons, financial mutual funds might provide much-needed stability in the current environment. 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 primarily 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) follows the Davis Investment Discipline, allocating the majority of its net assets, plus borrowings, to securities of companies mainly in financial services. It primarily invests in common stocks, including depositary receipts, targeting firms with at least half their assets or revenues tied to financial services.
Christopher Cullom Davis has been the lead manager of RPFGX since January 2014, and 89.7% of the fund is invested in the financial sector. Three top holdings for RPFGX are 11.3% in Capital One, 9.3% in Wells Fargo and 7.5% in JPMorgan Chase.
RPFGX’s 3-year and 5-year annualized returns are 20.7% and 20.9%, respectively. Its net expense ratio is 0.94%. RPFGX has a Zacks Mutual Fund Rank #1. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
T. Rowe Price Financial Services (PRISX - Free Report) typically commits the majority of its net assets, plus borrowings, to common stocks of financial services companies. Derivatives offering exposure to the fund’s stated investment focus, or to related market risk factors, are included when determining compliance with the fund’s investment policy.
Gregory Locraft has been the lead manager of PRISX since September 2024, and 77.6% of the fund is invested in the financial sector. Three top holdings for PRISX are 4.8% in Bank of America, 4.5% in Mastercard and 4.4% in Visa.
PRISX’s 3-year and 5-year annualized returns are 19.1% and 21.7%, respectively. Its net expense ratio is 0.83%. PRISX has a Zacks Mutual Fund Rank #2.
Fidelity Select Brokerage & Investment Management (FSLBX - Free Report) invests the majority of its assets in companies mainly involved in financial exchanges, brokerage, investment banking, tax-advantaged investments, asset management, or advisory and decision support services. It focuses on common stocks, includes both U.S. and foreign issuers, and operates as a non-diversified fund.
Nadim Rabaia has been the lead manager of FSLBX since June 2023, and 76.9% of the fund is invested in the financial sector. Three top holdings for FSLBX are 8.2% in Moody’s, 6.1% in Charles Schwab and 5.6% in Intercontinental Exchange.
FSLBX’s 3-year and 5-year annualized returns are 24.7% and 22.3%, respectively. Its net expense ratio is 0.68%. FSLBX has a Zacks Mutual Fund Rank #1.
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3 Financial Mutual Funds to Ride the Financial Sector Momentum
The U.S. financial sector in 2025 has been marked by resilience and renewed investor enthusiasm, largely reflecting the interplay between solid earnings, capital markets activity and evolving monetary policy. The Financial Select Sector SPDR Fund (XLF) has gained 11.5% year to date, as of Sept. 3. Strong returns from major banks and diversified financial institutions have underpinned this performance, as net interest income has remained healthy while trading and investment banking revenues rebounded following a volatile 2024.
The dominant factor shaping the outlook for financials this year has been the Federal Reserve’s interest rate policy. After a considerably long period of maintaining a higher-for-longer stance, the Fed has signaled the beginning of a gradual easing cycle, citing cooling inflation and a more balanced labor market. For banks, this shift is double-edged. Elevated rates during 2023 and 2024 boosted net interest margins, allowing lenders to generate robust income from their loan books. However, high borrowing costs curtailed credit demand and weighed on consumer sentiment. The anticipated rate cuts starting this month are expected to revive loan growth and stimulate capital markets activity.
Looking ahead, the sector’s trajectory will depend on the Fed’s pace of easing and the broader macroeconomic environment. A steady but cautious reduction in policy rates could provide the sweet spot, enough to stimulate lending and consumer spending without reigniting inflationary pressures. On the other hand, if the Fed cuts rates too aggressively in response to economic softness, investors may begin to question the quality of loan portfolios.
For now, confidence remains intact. The sector’s consistent performance highlights market conviction that U.S. banks are entering this new phase of monetary policy from a position of strength. For these reasons, financial mutual funds might provide much-needed stability in the current environment. 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 primarily 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) follows the Davis Investment Discipline, allocating the majority of its net assets, plus borrowings, to securities of companies mainly in financial services. It primarily invests in common stocks, including depositary receipts, targeting firms with at least half their assets or revenues tied to financial services.
Christopher Cullom Davis has been the lead manager of RPFGX since January 2014, and 89.7% of the fund is invested in the financial sector. Three top holdings for RPFGX are 11.3% in Capital One, 9.3% in Wells Fargo and 7.5% in JPMorgan Chase.
RPFGX’s 3-year and 5-year annualized returns are 20.7% and 20.9%, respectively. Its net expense ratio is 0.94%. RPFGX has a Zacks Mutual Fund Rank #1. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.
T. Rowe Price Financial Services (PRISX - Free Report) typically commits the majority of its net assets, plus borrowings, to common stocks of financial services companies. Derivatives offering exposure to the fund’s stated investment focus, or to related market risk factors, are included when determining compliance with the fund’s investment policy.
Gregory Locraft has been the lead manager of PRISX since September 2024, and 77.6% of the fund is invested in the financial sector. Three top holdings for PRISX are 4.8% in Bank of America, 4.5% in Mastercard and 4.4% in Visa.
PRISX’s 3-year and 5-year annualized returns are 19.1% and 21.7%, respectively. Its net expense ratio is 0.83%. PRISX has a Zacks Mutual Fund Rank #2.
Fidelity Select Brokerage & Investment Management (FSLBX - Free Report) invests the majority of its assets in companies mainly involved in financial exchanges, brokerage, investment banking, tax-advantaged investments, asset management, or advisory and decision support services. It focuses on common stocks, includes both U.S. and foreign issuers, and operates as a non-diversified fund.
Nadim Rabaia has been the lead manager of FSLBX since June 2023, and 76.9% of the fund is invested in the financial sector. Three top holdings for FSLBX are 8.2% in Moody’s, 6.1% in Charles Schwab and 5.6% in Intercontinental Exchange.
FSLBX’s 3-year and 5-year annualized returns are 24.7% and 22.3%, respectively. Its net expense ratio is 0.68%. 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 >>