Rate Hike Looms Large: 3 Financial Fund Picks

By Zacks Equity Research, Zacks Investment Research

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Minutes from the Fed’s last meeting made it clear that the central bank is set to hike interest rates in its next meeting in September. In the meeting, held from Jul 31 through Aug 1, the Fed forecasted that the U.S. economy is likely to continue exhibiting “strong” growth in the days to come. However, trade war-related woes might end up hindering overall economic growth.

Therefore, it becomes clear that Fed chief, Jerome Powell, would remain unperturbed by Trump’s not-so-unusual tirades. Further, it is likely that there might be two more hikes this year. Under such circumstances where interest rates are to remain high, betting on financial mutual funds would be judicious.

Rate Hike Imminent in September

According to the Fed minutes, if growth remains strong, “it would likely soon be appropriate to take another step in removing policy accommodation.” This is a clear indication of an inevitable rate hike in September. The Fed is largely expected to hike rates once again in December. Notably, CME’s FedWatch Tool predicts 98.4% probability of a hike in interest rate levels in September.

The meeting gave not-so-clear indications regarding how long the Fed might continue raising interest rates. Instead, the minutes noted that the term “accommodative,” which has been used for some years to characterize the central bank’s policy stance could become “fairly soon” in the minutes of future meetings.

3 Best Mutual Funds to Buy Now

Given such positives, we have highlighted three financial mutual funds poised to gain significantly from a rising rate environment in the United States. These funds also carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three and one-year returns. Additionally, the minimum initial investment is within $5000.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.

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.

Financial Fund Picks: Vanguard Financials Index Fund (VFAIX)

Vanguard Financials Index Fund (MUTF:VFAIX) tracks the performance of MSCI US Investable Market Index (IMI)/Financials 25/50 using an indexing investment approach. The fund invests the majority of its assets in stocks that are part of this index. Such investments include large-cap, mid-cap and small-cap companies from the financial sector that are categorized under Global Industry Classification Standard (GICS).

This Sector-Finance product has a history of positive total returns for over 10 years.

VFAIX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.10%, which is below the category average of 1.40%. The fund has three and five-year returns of 13.6% and 13.1%, respectively.

Financial Fund Picks: T. Rowe Price Financial Services Fund (PRISX)

T. Rowe Price Financial Services Fund (MUTF:PRISX) seeks both capital growth and current income. The majority of its assets are invested in financial services companies. It may also purchase securities of companies involved in providing financial software. The fund uses fundamental bottom-up analysis in order to select securities.

This Sector-Finance product has a history of positive total returns for over 10 years.

PRISX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.85%, which is below the category average of 1.40%. The fund has three and five-year returns of 10.3% and 12%, respectively.

Financial Fund Picks: Prudential Jennison Financial Services Fund (PFSAX)

Prudential Jennison Financial Services Fund (MUTF:PFSAX) invests a heavy portion of its assets in equity securities of asset management companies, securities/brokerage firms, mortgage banking companies, banks, insurance companies, industrial finance companies and leasing companies.

This Sector-Finance product has a history of positive total returns for over 10 years.

PFSAX has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 1.37%, which is below the category average of 1.40%. The fund has three and five-year returns of 5.1% and 4.7%, respectively.

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Article printed from InvestorPlace Media, https://investorplace.com/2018/08/rate-hike-looms-large-3-financial-fund-picks-ggsyn/.

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