It's not completely clear who the next president will be, but it's obvious that financial stocks and financial-sector funds are back from the dead.
Just a few years ago these funds, which typically invest in banks, brokerages, insurers and money management shops, were the hottest around. Investors saw a booming economy, industry consolidation and the vast wave of baby boomers building a retirement nest egg as key growth catalysts. In 1995, 1996 and 1997, the average financial sector fund beat the
In 1998 and 1999, however, rising rates and slowing growth put the sector in neutral -- rising rates typically pinch financial stocks' profits. The stabilization of interest rates and a spate of mergers this year have the sector marching north again, to the tune of a 19.6% gain, while the S&P 500 is underwater.
Since financial stocks tend to have lower valuations and volatility than technology stocks, investors smarting this year from a tech-heavy portfolio might
look for a value fund or consider a financial sector fund. We've sifted the financial sector fund category for those funds that beat their average peer over the last one- and three-year time periods, according to
. Here's a top-10 list, ranked by one-year returns.
We've also screened leading funds' holdings to see what stocks they're betting on, but lets look at the funds first.
As you can see, this list proves Fidelity isn't just a growth shop. The firm has a history of changing its sector fund managers more often than many of us change our shower curtains, but the Boston behemoth's deep bench of analysts typically keeps them on track. That's the case here with three Fidelity financial sector funds on the list:
Fidelity Select Brokerage & Investment Management,
Fidelity Select Insurance and
Fidelity Advisor Financial. One thing to keep in mind is that the first two levy a maximum 3% front-end load or sales charge, while the second levies sales charges through various share classes.
If you work with a broker and want broader exposure to the sector, Fidelity Advisor Technology might be worth a look. If you invest on your own and don't mind paying a maximum 3% sales charge you might look at
Fidelity Select Financial Services, which barely missed making our list. Both funds are managed by James Catudal.
John Hancock Financial Industries fund also stands out because lead manager Jim Schmidt is probably the most tenured financial specialist out there. He's run the
John Hancock Regional Bank fund since the 1980s.
If sales charges are anathema, take a look at the no-load
T. Rowe Price Financial Services and
Invesco Financial Services funds, which are both solid options.
As for the stocks that propelled these funds, there aren't many surprises. The stocks these managers' liked most are the biggies like
, which is in all these funds as of their most recent portfolio report.
Two holdings that are boil down to bets on the fund business itself are
Marsh & McLennan
, which owns fund titan
, and railroad concern
Kansas City Southern
, former parent of the top-selling Janus Funds. Over the summer, Kansas City Southern
spun Janus out as
, bundling the firm with
No doubt these funds have since dropped their Kansas City Southern stakes.
Ian McDonald owns shares of the John Hancock Financial Industries fund.
Editorial assistant Dan Bernstein contributed to this report.