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3 Financial Mutual Funds to Buy With Rate Cuts on the Horizon
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The Federal Reserve raised interest rates for 10 straight policy meetings in a bid to control inflation before finally opting for a rate pause in June 2023. With the Fed’s tight monetary policy finally taking effect, it barely raised rates till the end of the year while promising at least three rate cuts in 2024. However, well into 2024, inflation continued to hold off against the central bank’s targeted rate, and it was only in May that it showed signs of cooling down.
Fed Chair Jerome Powell has continued to suggest that he is fairly certain of rate cuts this year, but the Fed would embark on that journey only after reviewing further data. As of Jul 19, CME’s FedWatch tool predicts a 91.7% probability that the central bank would bring rates down by 25 bps in its September meeting. Whether this comes to fruition entirely depends on inflation and other economic indicators to be released between today and the months going forward. But it must be noted that since the April numbers were released in May, prices have steadily cooled off.
Yet, while a September rate cut is almost a certainty, the Fed has resisted committing to further cuts. This entails that interest rates are not going to come down rapidly. When interest rates are high, banks and other financial institutions generally see higher profitability due to increased lending rates. The gap between such lending rates is considered a long-term asset for banks. Also, short-term liabilities such as deposits increase and boost net interest margins.
Stocks of banks, insurance companies and other financial institutions go up with continuous interest rate hikes. This is because financial services companies can earn more on the money they have and on the credit they issue to their customers. As a result, the S&P 500 Financials Select Sector SPDR (XLF) soared 10.1% year to date as of Jun 30.
Also, financial stocks are very popular investments to own within a portfolio. Most companies within the sector issue dividends and are judged on the overall strength of their financial health.
For these reasons, financial mutual funds might provide much-required stability in a high-rate environment market. 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.
T. Rowe Price Financial Services (PRISX - Free Report) seeks long-term growth of capital by investing the majority of its net assets in common stocks issued by companies engaged in providing financial services to consumers and industry. PRISX advisors aim to invest in high quality companies with good appreciation prospects.
Matt J. Snowling has been the lead manager of PRISX since June 2021, and 84.7% of the fund is invested in the financial sector. Three top holdings for PRISX are 4.6% in Wells Fargo, 4.5% in Bank of America and 4.5% in Chubb.
PRISX’s 3-year and 5-year annualized returns are 7.6% and 12.9%, respectively. Its net expense ratio is 0.83% compared to the category average of 1.09%. PRISX 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.
Fidelity Select Financials Portfolio (FIDSX - Free Report) seeks long-term growth of capital by investing the majority of its net assets in common stocks issued by companies providing financial services to consumers and industry. FIDSX offers dividends and capital gains twice a year, in September and December.
Matt Reed has been the lead manager of FIDSX since May 2019, and 78.6% of the fund is invested in the financial sector. Three top holdings for FIDSX are 10.2% in Mastercard, 8% in Wells Fargo and 5.4% in Bank of America.
FIDSX’s 3-year and 5-year annualized returns are 6.9% and 11.9%, respectively. Its net expense ratio is 0.76% compared to the category average of 1.24%. FIDSX has a Zacks Mutual Fund Rank #1.
Fidelity Select Brokerage & Investment Management (FSLBX - Free Report) 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.
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 7.9% in Moody’s, 5.5% in KKR & Co. and 5.5% in BlackRock.
FSLBX’s 3-year and 5-year annualized returns are 8.6% and 17.5%, respectively. Its net expense ratio is 0.75% compared to the category average of 1.24%. FSLBX has a Zacks Mutual Fund Rank #1.
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3 Financial Mutual Funds to Buy With Rate Cuts on the Horizon
The Federal Reserve raised interest rates for 10 straight policy meetings in a bid to control inflation before finally opting for a rate pause in June 2023. With the Fed’s tight monetary policy finally taking effect, it barely raised rates till the end of the year while promising at least three rate cuts in 2024. However, well into 2024, inflation continued to hold off against the central bank’s targeted rate, and it was only in May that it showed signs of cooling down.
Fed Chair Jerome Powell has continued to suggest that he is fairly certain of rate cuts this year, but the Fed would embark on that journey only after reviewing further data. As of Jul 19, CME’s FedWatch tool predicts a 91.7% probability that the central bank would bring rates down by 25 bps in its September meeting. Whether this comes to fruition entirely depends on inflation and other economic indicators to be released between today and the months going forward. But it must be noted that since the April numbers were released in May, prices have steadily cooled off.
Yet, while a September rate cut is almost a certainty, the Fed has resisted committing to further cuts. This entails that interest rates are not going to come down rapidly. When interest rates are high, banks and other financial institutions generally see higher profitability due to increased lending rates. The gap between such lending rates is considered a long-term asset for banks. Also, short-term liabilities such as deposits increase and boost net interest margins.
Stocks of banks, insurance companies and other financial institutions go up with continuous interest rate hikes. This is because financial services companies can earn more on the money they have and on the credit they issue to their customers. As a result, the S&P 500 Financials Select Sector SPDR (XLF) soared 10.1% year to date as of Jun 30.
Also, financial stocks are very popular investments to own within a portfolio. Most companies within the sector issue dividends and are judged on the overall strength of their financial health.
For these reasons, financial mutual funds might provide much-required stability in a high-rate environment market. 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.
T. Rowe Price Financial Services (PRISX - Free Report) seeks long-term growth of capital by investing the majority of its net assets in common stocks issued by companies engaged in providing financial services to consumers and industry. PRISX advisors aim to invest in high quality companies with good appreciation prospects.
Matt J. Snowling has been the lead manager of PRISX since June 2021, and 84.7% of the fund is invested in the financial sector. Three top holdings for PRISX are 4.6% in Wells Fargo, 4.5% in Bank of America and 4.5% in Chubb.
PRISX’s 3-year and 5-year annualized returns are 7.6% and 12.9%, respectively. Its net expense ratio is 0.83% compared to the category average of 1.09%. PRISX 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.
Fidelity Select Financials Portfolio (FIDSX - Free Report) seeks long-term growth of capital by investing the majority of its net assets in common stocks issued by companies providing financial services to consumers and industry. FIDSX offers dividends and capital gains twice a year, in September and December.
Matt Reed has been the lead manager of FIDSX since May 2019, and 78.6% of the fund is invested in the financial sector. Three top holdings for FIDSX are 10.2% in Mastercard, 8% in Wells Fargo and 5.4% in Bank of America.
FIDSX’s 3-year and 5-year annualized returns are 6.9% and 11.9%, respectively. Its net expense ratio is 0.76% compared to the category average of 1.24%. FIDSX has a Zacks Mutual Fund Rank #1.
Fidelity Select Brokerage & Investment Management (FSLBX - Free Report) 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.
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 7.9% in Moody’s, 5.5% in KKR & Co. and 5.5% in BlackRock.
FSLBX’s 3-year and 5-year annualized returns are 8.6% and 17.5%, respectively. Its net expense ratio is 0.75% compared to the category average of 1.24%. 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 >>