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3 Financial Mutual Funds to Bet on As Rates Keep Rising
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The Federal Reserve has been raising rates since March. Having been late in raising rates in their own admission, Fed officials have incrementally raised rates in each of their meetings, from 25 to 75 basis points, as the inflation has worsened. The July increase of 75 basis points for a second straight month marked the fastest pace of policy tightening in the past four decades.
Fed chairman Jerome Powell has gone on record after the July meeting, saying that the September rate hike could be “unusually large.” Fed officials who have spoken to the media since the meeting have also pushed back against any perception that they would be easing off on tightening any time soon. They have made it abundantly clear that curbing the hottest inflation in four decades is their top priority. Fed minutes from the July meeting released yesterday also indicated that policymakers remain committed to increasing interest rates to tame inflation.
The July jobs data showed a robust job market contrary to expectations, and the unemployment rate hit a pre-pandemic low. Seeing this as a solid macroeconomic sign of the economy not slowing down amid talks of an impending recession, the Fed can continue on its path of further tightening of monetary policy. But investors are taking heart from the latest consumer price index numbers, which have shown inflation falling from a 9.1% year-on-year high in June to 8.5% in July. Inevitable, as an interest rate hike may be, perhaps it will not be as steep as 75 basis points.
Due to the hike in interest rates, the banking sector and other financial institutions that have cash holdings from customers and business activities will see higher profitability due to increased lending rates. This will increase their earnings as the gap between the federal fund rate and the rate the bank charges its customers will widen even further.
In summary, financial mutual funds provide much-required growth in a volatile market and in one where interest rate hikes are expected to continue in the foreseeable future. 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 mostly 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 Fund Class A (RPFGX - Free Report) seeks long-term growth of capital. Under normal circumstances, the fund invests the majority of its net assets in securities issued by companies engaged in the financial services sector. The fund offers dividends and capital gains annually.
Christopher Davis has been the lead manager of RPFGX since Dec 31, 2013, and 91.5% of the fund is invested in the financial sector. Three top holdings for RPFGX are 8.2% in Capital One Financial, 6.9% in Berkshire Hathaway and 6.3% in Wells Fargo.
RPFGX’s 3-year and 5-year annualized returns are 6.6% and 5.6%, respectively. Its net expense ratio is 0.94% compared to the category average of 1.08%. RPFGX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Fidelity Select Insurance Portfolio (FSPCX - Free Report) seeks capital appreciation. FSPCX usually invests the majority of its net assets in securities of companies principally engaged in underwriting, reinsuring, selling, distributing, and placing insurance. The fund offers dividends and capital gains twice a year in April and December.
Peter Deutsch has been the lead manager of FSPCX since May 31, 2013, and 94.3% of the fund is invested in the financial sector. Three top holdings for FSPCX are 9.6% in Chubb Ltd, 9.5% in Marsh & McLennan and 8.6% in The Travelers Companies.
FSPCX’s 3-year and 5-year annualized returns are 9.3% and 8.5%, respectively. Its net expense ratio is 0.78% compared to the category average of 1.08%. FSPCX has a Zacks Mutual Fund Rank #1.
T. Rowe Price Financial Services Fund, Inc. (PRISX - Free Report) seeks long-term growth of capital and a modest level of income. The fund invests most of its net assets in common stocks of companies in the financial services industry, and in companies deriving substantial revenues from conducting business with the industry, such as providers of financial software. The fund offers dividends and capital gains annually in December.
Matt Snowling has been the lead manager of PRISX since July 2021, and 84.6% of the fund is invested in the financial sector. Three top holdings for PRISX are 4.3% in Wells Fargo, 4.1% in Bank of America and 3.8% in Chubb Ltd.
PRISX’s 3-year and 5-year annualized returns are 10.9% and 9.8%, respectively. Its net expense ratio is 0.80% compared to the category average of 1.29%. PRISX has a Zacks Mutual Fund Rank #1.
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3 Financial Mutual Funds to Bet on As Rates Keep Rising
The Federal Reserve has been raising rates since March. Having been late in raising rates in their own admission, Fed officials have incrementally raised rates in each of their meetings, from 25 to 75 basis points, as the inflation has worsened. The July increase of 75 basis points for a second straight month marked the fastest pace of policy tightening in the past four decades.
Fed chairman Jerome Powell has gone on record after the July meeting, saying that the September rate hike could be “unusually large.” Fed officials who have spoken to the media since the meeting have also pushed back against any perception that they would be easing off on tightening any time soon. They have made it abundantly clear that curbing the hottest inflation in four decades is their top priority. Fed minutes from the July meeting released yesterday also indicated that policymakers remain committed to increasing interest rates to tame inflation.
The July jobs data showed a robust job market contrary to expectations, and the unemployment rate hit a pre-pandemic low. Seeing this as a solid macroeconomic sign of the economy not slowing down amid talks of an impending recession, the Fed can continue on its path of further tightening of monetary policy. But investors are taking heart from the latest consumer price index numbers, which have shown inflation falling from a 9.1% year-on-year high in June to 8.5% in July. Inevitable, as an interest rate hike may be, perhaps it will not be as steep as 75 basis points.
Due to the hike in interest rates, the banking sector and other financial institutions that have cash holdings from customers and business activities will see higher profitability due to increased lending rates. This will increase their earnings as the gap between the federal fund rate and the rate the bank charges its customers will widen even further.
In summary, financial mutual funds provide much-required growth in a volatile market and in one where interest rate hikes are expected to continue in the foreseeable future. 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 mostly 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 Fund Class A (RPFGX - Free Report) seeks long-term growth of capital. Under normal circumstances, the fund invests the majority of its net assets in securities issued by companies engaged in the financial services sector. The fund offers dividends and capital gains annually.
Christopher Davis has been the lead manager of RPFGX since Dec 31, 2013, and 91.5% of the fund is invested in the financial sector. Three top holdings for RPFGX are 8.2% in Capital One Financial, 6.9% in Berkshire Hathaway and 6.3% in Wells Fargo.
RPFGX’s 3-year and 5-year annualized returns are 6.6% and 5.6%, respectively. Its net expense ratio is 0.94% compared to the category average of 1.08%. RPFGX has a Zacks Mutual Fund Rank #2. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
Fidelity Select Insurance Portfolio (FSPCX - Free Report) seeks capital appreciation. FSPCX usually invests the majority of its net assets in securities of companies principally engaged in underwriting, reinsuring, selling, distributing, and placing insurance. The fund offers dividends and capital gains twice a year in April and December.
Peter Deutsch has been the lead manager of FSPCX since May 31, 2013, and 94.3% of the fund is invested in the financial sector. Three top holdings for FSPCX are 9.6% in Chubb Ltd, 9.5% in Marsh & McLennan and 8.6% in The Travelers Companies.
FSPCX’s 3-year and 5-year annualized returns are 9.3% and 8.5%, respectively. Its net expense ratio is 0.78% compared to the category average of 1.08%. FSPCX has a Zacks Mutual Fund Rank #1.
T. Rowe Price Financial Services Fund, Inc. (PRISX - Free Report) seeks long-term growth of capital and a modest level of income. The fund invests most of its net assets in common stocks of companies in the financial services industry, and in companies deriving substantial revenues from conducting business with the industry, such as providers of financial software. The fund offers dividends and capital gains annually in December.
Matt Snowling has been the lead manager of PRISX since July 2021, and 84.6% of the fund is invested in the financial sector. Three top holdings for PRISX are 4.3% in Wells Fargo, 4.1% in Bank of America and 3.8% in Chubb Ltd.
PRISX’s 3-year and 5-year annualized returns are 10.9% and 9.8%, respectively. Its net expense ratio is 0.80% compared to the category average of 1.29%. PRISX 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 >>