Most of the recently released economic data, including encouraging job numbers, a flurry of positive housing market data and improving consumer sentiment, suggested that the economy is gradually gaining strength. This raised the possibility of a rate hike in the near future. It is speculated that the Fed will raise interest rates by the end of this year. The rate increase will expand margins for brokerage firms, insurance companies, banks, and money managers. Further, the increased interest rates would enable banks to earn more on the spread between interest rates for savings accounts and certificates of deposit. Meanwhile, the financial sector witnessed an encouraging first quarter earnings season. In this favorable environment, investors may find it profitable to invest in financial mutual funds that are poised to benefit from a possible rate hike.
Below we will share with you 5 financial mutual funds. Each has earned either a Zacks #1 Rank (Strong Buy) or a Zacks #2 Rank (Buy) as we expect these mutual funds to outperform their peers in the future.
Franklin Mutual Financial Services Fund A (MUTF:TFSIX) seeks capital growth. TFSIX invests a lion's share of its assets in undervalued companies that are involved in the financial services domain. TFSIX may also invest in merger arbitrage securities and securities of distressed companies. TFSIX may invest a significant portion of its assets in non-US securities. The Franklin Mutual Financial Services Fund A fund returned 15.4% in the last one year.
As of March 2015, TFSIX held 88 issues with 3% of its assets invested in American International Group Inc. (NYSE:AIG)
Schwab Financial Services Fund (MUTF:SWFFX) generally invests in equities of financial services companies. These companies may include asset management firms, brokerage companies, commercial banks, insurance companies and real estate investment trusts (REITs). The Schwab Financial Services Fund returned 12.6% in the last one year.
SWFFX has an expense ratio of 0.90% as compared to the category average of 1.52%.
Fidelity Select Insurance Portfolio (MUTF:FSPCX) seeks capital growth over the long run. FSPCX invests a large chunk of its assets in companies that are involved in operations including underwriting, selling, distribution of insurances related to property, casualty, life, or health. FSPCX focuses on acquiring common stocks of companies throughout the globe. FSPCX considers factors including financial strength and economic conditions before investing in securities of a company. The Fidelity Select Insurance Portfolio fund is non-diversified and returned 10.8% in the last one year.
Peter Deutsch is the fund manager and has managed FSPCX since 2013.
T. Rowe Price Financial Services Fund (MUTF:PRISX) invests a major portion of its assets in common stocks of companies from the financial services sector. PRISX may also invest in other companies that earn a minimum of half of its revenues from finance sector. PRISX uses bottom-up analysis to invest in companies that are believed to have an impressive growth potential. The T. Rowe Price Financial Services Fund returned 17.5% in the last one year.
PRISX has an expense ratio of 0.87% as compared to the category average of 1.52%.
Davis Financial Fund A (MUTF:RPFGX) seeks long-term capital appreciation. The Davis Investment Discipline is utilized to invest a majority of RPFGX's assets in companies involved in the financial services industry. Companies that have the majority of their assets related to financial services or derive a minimum of half of their revenues from the financial services domain are selected by RPFGX's advisors for investment. Davis Financial Fund A returned 13.8% in the last one year.
Christopher Cullom Davis is the fund manager and has managed RPFGX since 2014.