Inflation remains stubbornly high despite the Federal Reserve’s aggressive rate hike policy. This saw volatility return to markets in April after a Wall Street rally in the first quarter.

The Consumer Price Index (CPI), the Federal Reserve’s favorite gauge for inflation, rose 3.5% year over year in March after increasing 3.2% in February. Inflation has resumed its climb after falling below 3% in December 2023.

Also, price pressures are biting into the profits of companies and have been weighing on the economy. The U.S. economy grew a meager 1.6% in the first quarter, below the consensus estimate of 2.2%. It was also lower than the GDP growth of 3.4% in the fourth quarter of 2023.

All three major indexes recorded losses in April as concerns over the economy’s health continued to grow. The Dow, the S&P 500 and the Nasdaq Composite finished 5%, 4.2% and 4.4% lower, respectively, in April.

Last week, Federal Reserve Chairman Jerome Powell said that it is unlikely that there will be any further rate hikes. Powell’s comments were cheered by investors. The Federal Reserve last month said that it still plans three rate cuts by the end of this year.

However, Powell didn’t give any hint on the timing of the first rate cut. Understandably, with inflation still well above 3% and showing no signs of decline, it is unlikely that the Federal Reserve will cut rates anytime soon.

During periods of high-interest rates, institutions within the banking sector, including retail banks, commercial banks, investment banks, insurance companies, and brokerages, typically experience heightened profitability due to elevated lending rates. This uptick in rates leads to increased earnings for these institutions, resulting in wider spreads between the federal overnight fund rate and the rates they charge their customers.

3 Best Choices

We've identified three financial mutual funds that have demonstrated impressive annualized returns over 3-year and 5-year periods. These funds also hold a Zacks Mutual Fund Rank of #1 (Strong Buy), require an initial investment of no more than $5,000 and have a low expense ratio.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

T. Rowe Price Financial Services (PRISX Quick QuotePRISX - 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.

T. Rowe Price Financial Services fund has a track of positive total returns for over 10 years. Specifically, PRISX’s returns over the three and five-year benchmarks are 9.9% and 14.6%, respectively. The annual expense ratio of 0.83% is lower than the category average of 1.10%. PRISX has a Zacks Mutual Fund Rank #1.

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

Fidelity Select Brokerage & Inv Mgmt (FSLBX Quick QuoteFSLBX - Free Report) fund invests in securities of companies principally engaged in the exchange of financial instruments, stock brokerage, commodity brokerage, investment banking, or related investment advisory and financial decision support services. FSLBX invests primarily in common stocks.

Fidelity Select Brokerage & Inv Mgmt fund has a track of positive total returns for over 10 years. Specifically, FSLBX’s returns over the three and five-year benchmarks are 13.4% and 19.3%, respectively. The annual expense ratio of 0.76% is lower than the category average of 1.24%. FSLBX has a Zacks Mutual Fund Rank #1.

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

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.

Fidelity Select Insurance Portfolio fund has a track of positive total returns for over 10 years. Specifically, FSPCX’s returns over the three and five-year benchmarks are 18.6% and 16.4%, respectively. The annual expense ratio of 0.80% is lower than the category average of 1.24%. FSPCX has a Zacks Mutual Fund Rank #1.

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

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