Finances ─ The US Federal Reserve has been implementing a non-stop aggressive interest rate hike since the beginning of the year. As a result, the US equities market, as well as other financial markets in the world, have been detrimentally affected by the sudden brake and switch from the expansionary economic environment the global markets have enjoyed.

On top of this, the Fed is expected to raise yet another three-quarter of a percentage or 75 basis points minimum in its upcoming policy meeting set today at 2 PM ET. Fed Chair Jerome Powell will hold a consequential press conference following the meeting about the decision and what everyone can expect from the central bank moving forward.

Interestingly, despite the seemingly grim effect it would most likely bring in the financial markets, some mutual funds are expected to benefit from this predicament. These funds have one thing in common ─ they represent financial service industries that benefit from the higher lending rates due to the increasing interest rates. These mutual funds have been sorted out based on Nasdaq.com’s fund ranking.

The Lucky Few in the Sea of Red

• Fidelity Select Financial Services Portfolio (FIDSX)

FIDSX is a mutual fund managed by Matt Reed, the fund’s lead manager since June of 2019. The fund primarily invests in common stocks of foreign and domestic (US) companies mainly engaged in financial service activities, particularly lending.

Its investment criteria are based on strong fundamental analysis practices such as the financial industry’s current economic landscape, each company’s financial statements and valuations, and these companies’ position and competitive advantage in the industry as a whole. 

Based on the most recent data, most of FIDSX exposure includes Wells Fargo at 6.57%, Bank of America at 4.04%, and Morgan Stanley at 3.62% fund allocation, respectively. Meanwhile, the fund’s medium-term (three-year) and long-term (five-year) annualized returns are 8.9% and 8.1%, respectively.

• Davis Financial Fund Class A (RPFGX)

RPFGX is a mutual fund managed by Christopher Davis, the fund’s lead manager since January of 2004. RPFGX adheres religiously to the investment philosophy called “Davis Investment Discipline.” The mutual fund prioritizes long-term capital growth by pouring most of its available assets and additional purchasing power from its existing loans into hoarding depositary receipts and common stocks of companies that, just like FIDXS’s composition, are primarily engaged in financial service activities, particularly lending.

Based on the most recent data available, most of RPFGX’s exposure includes Capital One Financial at 8.23%, Berkshire Hathaway at 6.92%, and Wells Fargo at 6.31% fund allocation, respectively. Meanwhile, the fund’s medium-term (three-year) and long-term (five-year) annualized returns are 5.4% and 5.1%, respectively.

• T. Rowe Price Financial Services Fund, Inc. (PRISX)

Lastly, PRISX is a mutual fund managed by Matt Snowling, the fund’s lead manager since July of 2021. PRISX’s goal is to achieve long-term capital growth brought by mainly buying prominent companies as well as growth companies exemplifying high revenue margins in the financial service industry.

Based on its most recent data, most of PRISX’s exposure includes Wells Fargo at 4.13%, Bank of America at 4.13%, and short-term liquid investments at 3.84% fund allocation, respectively. Furthermore, the fund’s medium-term (three-year) and long-term (five-year) annualized returns are the highest among the three mutual funds we covered, with 10% and 9.1%, respectively.