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3 Financial Mutual Funds to Buy As Fed Keeps Interest Rate Same
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U.S. stock markets remained volatile as investors celebrated the Federal Reserves’ decision to hold the overnight interest rate but were worried about an indication of a further hike to tame inflation.
Domestic inflation, which began to swell in October 2021, remains the most dominant threat to the U.S. economy. The consumer price index for the month of September remains unchanged at 3.7% year on year, however the inflation level saw a favorable decline to 3% till June. An advance estimate of third-quarter U.S. gross domestic product (GDP) released by the Bureau of Economic Analysis showed that the economy grew at an annualized pace of 4.9%, the fastest in nearly two years.
The labor market remains strong and is still fueling inflation. The nonfarm payroll employment for the month of September rose by 336,000, and the unemployment rate remained unchanged at 3.8%. This resilience of the economy has left investors worried about how the hawkish Federal Reserve will react if the economy heats up further.
Aligned with market expectations, the Federal Reserve recently kept the overnight interest rate at 5.25-5.5%, which is the highest in 22 years. Fed Chairman Jerome Powell continues to stress on a stable inflation and left the doors open for more interest rate hike to meet its 2% inflation target for the long term. The Fed has indicated keeping interest rates high to dry out excess liquidity in the system.
Higher interest rates mostly benefit brokerages, insurance companies, financial services, 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 could charge higher interest rates for loans and pay lower interest rates to depositors. Insurance companies tend to benefit from higher interest as a rising interest rate environment is likely to earn improved spreads over the cost of funding liabilities.
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, by the way, have given impressive 3-year and 5-year returns as well, boast a Zacks Mutual Fund Rank #1 (Strong Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio compared to the category average of 1.08%.
Fidelity Select Insurance Portfolio (FSPCX - Free Report) fund invests most of its net assets in common stocks of domestic and foreign companies that are principally engaged in underwriting, reinsuring, selling, distributing, or placing of property and casualty, life, or health insurance. FSPCX 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.
Fahim Razzaque has been the lead manager of FSPCX since Jul 13, 2022, and most of the fund’s holdings were in companies like Marsh & Mclennan (10.7%), Chubb (10.6%) and Progressive (8.4%) as of May 31, 2023.
FSPCX’s 3-year and 5-year returns are 20% and 11%, respectively. FSPCX has an annual expense ratio of 0.81%.
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) fund invests most of its assets along with borrowings if any, in common stocks of financial services companies and others conducting business in the financial services industry, such as financial software providers. PRISX advisors select stocks based on companies’ fundamental and bottom-up analysis that seeks quality companies with good appreciation prospects.
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 Chubb (4.5%), Bank of America (4.4%) and Wells Fargo (4.1%) as of Jun 30, 2023.
PRISX’s 3-year and 5-year returns are 16.6% and 7.5%, respectively. PRISX has an annual expense ratio of 0.83%.
Fidelity Select Financial Services Portfolio (FIDSX - Free Report) fund 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 Jun 1, 2019, and most of the fund’s holdings were in companies like Mastercard (8.7%), Wells Fargo (8%) and Bank of America (6.1%) as of May 31, 2023.
FIDSX’s 3-year and 5-year returns are 15.9% and 6.7%, respectively. FIDSX has an annual expense ratio of 0.75%.
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3 Financial Mutual Funds to Buy As Fed Keeps Interest Rate Same
U.S. stock markets remained volatile as investors celebrated the Federal Reserves’ decision to hold the overnight interest rate but were worried about an indication of a further hike to tame inflation.
Domestic inflation, which began to swell in October 2021, remains the most dominant threat to the U.S. economy. The consumer price index for the month of September remains unchanged at 3.7% year on year, however the inflation level saw a favorable decline to 3% till June. An advance estimate of third-quarter U.S. gross domestic product (GDP) released by the Bureau of Economic Analysis showed that the economy grew at an annualized pace of 4.9%, the fastest in nearly two years.
The labor market remains strong and is still fueling inflation. The nonfarm payroll employment for the month of September rose by 336,000, and the unemployment rate remained unchanged at 3.8%. This resilience of the economy has left investors worried about how the hawkish Federal Reserve will react if the economy heats up further.
Aligned with market expectations, the Federal Reserve recently kept the overnight interest rate at 5.25-5.5%, which is the highest in 22 years. Fed Chairman Jerome Powell continues to stress on a stable inflation and left the doors open for more interest rate hike to meet its 2% inflation target for the long term. The Fed has indicated keeping interest rates high to dry out excess liquidity in the system.
Higher interest rates mostly benefit brokerages, insurance companies, financial services, 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 could charge higher interest rates for loans and pay lower interest rates to depositors. Insurance companies tend to benefit from higher interest as a rising interest rate environment is likely to earn improved spreads over the cost of funding liabilities.
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, by the way, have given impressive 3-year and 5-year returns as well, boast a Zacks Mutual Fund Rank #1 (Strong Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio compared to the category average of 1.08%.
Fidelity Select Insurance Portfolio (FSPCX - Free Report) fund invests most of its net assets in common stocks of domestic and foreign companies that are principally engaged in underwriting, reinsuring, selling, distributing, or placing of property and casualty, life, or health insurance. FSPCX 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.
Fahim Razzaque has been the lead manager of FSPCX since Jul 13, 2022, and most of the fund’s holdings were in companies like Marsh & Mclennan (10.7%), Chubb (10.6%) and Progressive (8.4%) as of May 31, 2023.
FSPCX’s 3-year and 5-year returns are 20% and 11%, respectively. FSPCX has an annual expense ratio of 0.81%.
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) fund invests most of its assets along with borrowings if any, in common stocks of financial services companies and others conducting business in the financial services industry, such as financial software providers. PRISX advisors select stocks based on companies’ fundamental and bottom-up analysis that seeks quality companies with good appreciation prospects.
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 Chubb (4.5%), Bank of America (4.4%) and Wells Fargo (4.1%) as of Jun 30, 2023.
PRISX’s 3-year and 5-year returns are 16.6% and 7.5%, respectively. PRISX has an annual expense ratio of 0.83%.
Fidelity Select Financial Services Portfolio (FIDSX - Free Report) fund 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 Jun 1, 2019, and most of the fund’s holdings were in companies like Mastercard (8.7%), Wells Fargo (8%) and Bank of America (6.1%) as of May 31, 2023.
FIDSX’s 3-year and 5-year returns are 15.9% and 6.7%, respectively. FIDSX has an annual expense ratio of 0.75%.
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 >>