Now is a great time to look at mutual funds that invest in financial stocks. With the Greek debt crisis calming down and second-quarter earnings season kicking into high gear this week, the financials sector may be setting up for a healthy run.
The financial services sector consists primarily of banks, credit card companies, insurance companies and brokerage firms.
Although financial stocks generally perform best in low-rate environments, rising rates won’t necessarily pose a problem because financial companies like banks can charge more for lending. This can increase the spread between lending rates and the rates paid on deposits.
Brokerage firms can also benefit when rates are rising, because this environment often coincides with periods of market strength and positive investor sentiment.
With that backdrop, here are three of the best mutual funds that invest in financial stocks.
Best Mutual Funds for Financial Stocks: T. Rowe Price Financial Services (PRISX)
Expenses: 0.91%, or $91 annually per $10,000 invested
Minimum Investment: $2,500
For mutual funds investing in financial stocks, it’s tough to beat T. Rowe Price Financial Services (PRISX).
Top holdings include large-cap financial firms like Citigroup (C), JPMorgan Chase (JPM) and Bank of America (BAC). But these are top holdings in most financial sector funds. What sets T. Rowe Price Financial Services apart from many other funds investing in financial stocks is that more than half of the portfolio assets are in small- and mid-cap stocks.
Without digging beneath the surface of PRISX, a primary distinctive trait of the fund is it outstanding performance. Year-to-date the fund is up 8%, which beats more than 80% of other funds investing in financial stocks.
Another point worth making is that the current manager, Gabriel Solomon, has only been at the helm of PRISX since April of 2014. But judging by the 1-year return of 16.2%, which beats 90% of the category, the fund stands a good chance of continuing its outperformance.
Best Mutual Funds for Financial Stocks: Fidelity Select Banking Portfolio (FSRBX)
Expenses: 0.8%, or $80 annually per $10,000 invested
Minimum Investment: $2,500
Another financial services sector mutual fund standout is Fidelity Select Banking Portfolio (FSRBX).
And like other standouts in the financial services sector, FSRBX also holds small- and mid-cap stocks, which have helped boost performance. The year-to-date gain of 6.5% beats more than 70% of financial services sector peers.
Although long-term performance for the fund is sub-par, the current manager, John Sheehy, has been at the helm since January of 2012. Reflecting on performance during his tenure, the 3-year annualized return of 18.4% is ahead of the average financial services sector fund.
Best Mutual Funds for Financial Stocks: Davis Financial (RPFGX)
Expenses: 0.86%, or $86 annually per $10,000 invested
Minimum Investment: $1,000
Davis Financial (RPFGX) is one of the best of Davis Funds, which has a 45-year history of equity investing with an eye toward financial stocks.
Davis funds traces its roots to legendary investor Shelby Cullom Davis, who was a leading financial advisor to governors and presidents. His son, Shelby M.C. Davis, founded Davis Advisors in 1969 after serving as the head of equity research at The Bank of New York, where he became the youngest Vice President of the bank since Alexander Hamilton.
The manager of the Davis Financial fund, Chris Davis, carries on the Davis tradition of excellence with category-beating historical returns. Although temporarily departing management duties in 2007, Davis returned to the helm of Davis Financial at the beginning of 2014 and has done well since his return.
The one-year return of 12.2% puts RPFGX ahead of nearly 80% of financial services sector funds.
Although RPFGX has a front load of 4.75%, the fee can be worth the solid management. There are also other share classes of the fund available. Some investors may qualify for the load-waived shares.
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities. His No. 1 holding is his privately held investment advisory firm on Hilton Head Island, SC. Under no circumstances does this information represent a recommendation to buy or sell securities.
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