The Consumer Price Index, which is the most accepted gauge for inflation, rose 0.5% for the month of January compared with a slower gain of 0.1% in December. Prices of goods and services rose by 6.4% over the past 12 months. In June 2022, prices of goods and services had touched a 40-year high of 9.1%. The Dow, the S&P 500 and the Nasdaq continued to post a negative return of 1.79%, 6.62% and 13.57%, respectively, over the past year.
Domestic inflation, which began to elevate in October 2021, has eroded a massive amount of investors’ wealth. With the receding trend of inflation numbers till December 2022, markets anticipate that the period of disinflation has begun. But the CPI numbers for the month of January show the trend is not a straight line. The Fed focused more on services inflation, in particular labor prices, with average hourly earnings up 10 cents to $33.03.
In the month of January, more than half a million jobs were added despite high inflation, rising interest rates and weakening economic prospects. Retail sales in the said period grew at 3.0%, which is the maximum in two years despite higher borrowing costs.
However, it is expected that, in response, the Fed will gradually keep raising interest rates to beat inflation and sticky price pressures driven by liquidity in the jobs markets. By pushing up interest rates, the Fed will increase borrowing costs, which can lead to a slowdown of growth, but in turn control inflation.
Higher interest rates mostly benefit brokerages, commercial banks and regional banks. The period of higher interest rates serves as a good source of revenues for the banking and financial services industry. The banks could charge higher interest rates for loans and pay lower interest rates to depositors.
Thus, from an investment standpoint, we have selected four financial mutual funds that are expected to give a positive return amid the rise in inflation. 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).
These funds, by the way, have given impressive 3-year and 5-year returns as well, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or Rank 2 (Buy) offer a minimum initial investment within $5,000 and carry a low expense ratio compared to the category average.
Fidelity Select Financial Services Portfolio FIDSX invests most of its net assets in common stocks of domestic and foreign companies that are principally engaged in providing financial services to consumers and industry. FIDSX advisors choose to invest in stocks based on fundamental analysis factors such as the issuer’s financial condition, industry position, as well as market and economic conditions.
Matt Reed has been the lead manager of FIDSX since Jun 1, 2019, and most of the fund’s holdings were in companies like Wells Fargo (7.40%), Bank of America (5.21%), and M&T Bank (4.08%) as of Aug 31, 2022.
FIDSX’s 3-year and 5-year returns are 11.6% and 7.6%, respectively. The annual expense ratio is 0.73% compared to the category average of 1.08%. FIDSX 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.
Davis Financial Fund RPFGX invests most of its net assets, along with borrowings, if any, in securities issued by companies principally engaged in the financial services sector using the Davis Investment Discipline. RPFGX advisors may in invest indirect holdings of common stock through depositary receipts.
Christopher Cullom Davis has been the lead manager of RPFGX since Jan 1, 2014, and most of the fund’s holdings were in companies like Capital One Financial (7.75%), Berkshire Hathaway (7.03%), and Wells Fargo (7.03%) as of Sep 30, 2022.
RPFGX’s 3-year and 5-year returns are 8.7% and 5.5%, respectively. The annual expense ratio of 0.94% is lower than the category average of 1.08%. RPFGX has a Zacks Mutual Fund Rank #2.
John Hancock Regional Bank Fund FRBAX invests most of its net assets in equity securities of commercial banks, industrial banks, savings and loan associations, and financial and bank holding companies, irrespective of their size. FRBAX advisors may also invest a small portion of their net assets in domestic and foreign financial services companies, stocks of companies outside the financial services sector,and below-investment-grade bonds rated as low as CCC.
Susan A. Curry has been the lead manager of FRBAX since May 1, 2006, and most of the fund’s holdings were in companies like M&T Bank Corporation (3.12%), Huntington Bancshares (2.93%) and Regions Financial (2.89%) as of Oct 31, 2022.
FRBAX’s 3-year and 5-year returns are 7.6% and 2.8%, respectively. The annual expense ratio is 0.82% compared to the category average of 1.08%. FRBAX has a Zacks Mutual Fund Rank #2.
Fidelity Select Banking Portfolio FSRBX invests most of its net assets in common stocks of domestic and foreign companies that are principally engaged in banking. FSRBX advisors choose to invest in stocks based on fundamental analysis factors such as the issuer’s financial condition, industry position, as well as market and economic conditions.
Matt Reed has been the lead manager of FSRBX since Sep 27, 2016, and most of the fund’s holdings were in companies like Wells Fargo (7.46%), M&T Bank (6.61%) and Bank of America (6.03%) as of Aug 31, 2022.
FSRBX’s 3-year and 5-year returns are 7.3% and 3.7%, respectively. The annual expense ratio is 0.73% compared to the category average of 1.08%. FSRBX has a Zacks Mutual Fund Rank #1.
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