Mutual fund investors who seek impressive returns could consider investing in the financial sector. Mutual funds are a great way to invest in a diversified pool of assets which also offer an option to secure investments against inflation, market risks and high transaction costs. In addition, investing in the financial sector comes with its own benefits.
First, investors can expect transparency because companies in the financial sector are extremely regulated and closely monitored. This careful monitoring offers investors the potential for receiving solid returns over time.
Second, the sector has fared decently since the beginning of 2019. The Financial Select Sector SPDR Fund (XLF) has gained 17.6% on a year-to-date basis. What’s more, the sector ranks third in witnessing maximum growth (56.7%) among the broader S&P 500 sectors.
Thus, investing in mutual funds from the sector seems apt at present. Let us compare two of the best funds from the space and find out which is a clear winner for investment purposes.
This fund aims for capital growth. FIDSX primarily invests its assets in securities of companies principally engaged in financial services sector activities. The fund mostly invests in common stocks of both U.S. and non-U.S. companies.
FIDSX was incepted in December 1981 and is managed by Fidelity. The fund carries a Zacks Mutual Fund Rank #1 (Strong Buy) and has an annual expense ratio of 0.76%, which is below the category average of 1.41%. It has no minimum initial investment.
This Zacks Sector-Finance product has a history of positive total returns for over a decade. Specifically, the fund’s returns are 13.4% over the 3-year and 8.5% over the5-year period. FIDSX has returned 22.3% on a year-to-date basis. To see how this fund performed compared with its category, and other #1 and #2 (Buy) Ranked Mutual Funds, please click here.
The Fidelity Select Financial Services Portfolio, as of the last filing, allocates its assets in the top two major groups; Large Value and Small Value. Further, as of the last filing, Citigroup Inc and Bank of America Corporation are the top holdings in FIDSX.
The fund seeks capital appreciation in the long term along with a decent level of income. PRISX invests primarily in common stocks of companies in the financial services sector. The fund may invest in financial software providers or data services.
PRISX was incepted in September 1996 and is managed by T. Rowe Price. The fund carries a Zacks Mutual Fund Rank #2 and has an annual expense ratio of 0.87%, which is below the category average of 1.41%. The fund has a minimum initial investment of $2500.
This Zacks Sector-Finance product has a history of positive total returns for over 10 years. Specifically, the fund’s returns are 14.6% over the 3-year and 10.2% over the 5-year period. PRISX has returned 21.5% on a year-to-date basis. To see how this fund performed compared with its category, and other #1 and #2 Ranked Mutual Funds, please click here.
The T. ROWE PRICE Financial Services Fund, as of the last filing, allocates its assets in the top two major groups; Large Value and Small Growth. Further, as of the last filing, Chubb Ltd and Citigroup Inc were the top holdings in PRISX.
Although both FIDSX and PRISX are buy-rated funds, the latter emerges a clear winner. Why? First, the fund’s returns over a three- and five- year period are higher than FIDSX’s. Second, PRISX carries a lower three-year beta of 0.97 against FIDSX’s 1.10. In addition, PRISX returned 3.8% while FIDSX returned 3.2% in third-quarter 2019.
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