The financial sector gives investors an opportunity to participate in equity and debt securities of companies, such as banks, investment funds, brokerage operations, insurance companies and real estate firms, that provide a bevy of financial services. Companies that operate within the financial industry are highly regulated, which results in transparency for investors and shareholders. Consistent oversight of financial companies also provides the potential for steady returns over time through the combination of capital appreciation and dividend payouts. Investors in financial mutual funds and other pooled investment options have the benefit of participating in an industry that is in high demand from consumers in such a way that diversification and management of risk are inherent.

While companies operating in the financial sector provide unique benefits to investors, risks are present. National and regional banks, mortgage companies, insurance providers and real estate firms are all exposed to interest rate and credit risks that can lead to declining returns over time. Similarly, the influx of innovative technology platforms has set the stage for disruption among conventional financial services organizations as more consumers shift toward low-cost, Internet-based options. Investors who include financial sector funds in their portfolio should do so as a complement to other debt and equity security holdings, and should have a long-term investment time horizon.

Mutual Financial Services Fund Class A

The Mutual Financial Services Fund Class A is supported by Franklin Templeton Investments, a leader in mutual fund investments for institutional investors and individual investors. The fund was established in 1997 and has been managed by Andrew Sleeman since December 2009. TFSIX seeks to generate a total return through capital appreciation with a secondary focus on current income by investing a minimum of 80% of fund assets in securities of financial services companies. Sleeman and the investment management team focus the fund's $605.84 million assets in companies believed to have a value tilt based on their intrinsic value.

TFSIX has generated a 10-year annualized return of 3.89% for investors. It has an expense ratio of 1.44%, which is slightly below the category average of 1.52%. Investors pay an upfront sales load of 5.75% for any purchase of the fund, and a minimum of $1,000 is required for an initial investment. Top holdings for TFSIX include American International Group at 3.49%; CIT Group, Inc. at 3.29%; XL Group PLC at 2.95%; Wells Fargo & Company at 2.22%; and MetLife, Inc. at 2.20%.

Schwab Financial Services Fund

The Schwab Financial Services Fund is provided to investors through the Charles Schwab family of mutual funds and was established in 2000. Wei Li is the fund's portfolio manager and has held the position since June 2013. The Schwab Financial Services Fund seeks to generate long-term capital growth by investing the majority of its $77.52 million assets in equity securities of companies operating in asset management; brokerage operations; commercial banks; financial services firms; insurance companies; real estate investment trusts, or REITs, companies; and savings and loan associations.

Since its inception, SWFFX has generated a 10-year annualized return of 3.32%, with an expense ratio of 0.90%. It does not impose an upfront or deferred sales charge to investors but requires a minimum initial investment of $100 for qualified and nonqualified accounts. Top holdings include JPMorgan Chase & Co. at 6.00%; Wells Fargo & Company at 5.99%; Berkshire Hathaway, Inc. at 5.48%; Bank of America Corporation at 5.32%; and Citigroup Inc. at 5.27%.

Emerald Banking and Finance Fund Class A

The Emerald Banking and Finance Fund Class A is made available to investors through the Emerald Investment group and has an inception date of 1997. Steven E. Russell is the fund manager, holding the position since March 2012. HSSAX provides investors access to the equity market of financial services companies by investing a minimum of 80% of its $218.58 million assets in common and preferred stock of companies engaged in banking or financial services. The investment objective of the fund is long-term growth through capital appreciation, with current income as a secondary objective.

Since its inception, HSSAX has provided investors a 10-year annualized return of 3.45%, with an expense ratio of 1.60%. It charges an upfront sales load of 4.75% on new investments but does not impose a deferred sales charge on redemption of shares. Investors are required to invest a minimum of $2,000 for nonqualified accounts. As of September 2015, top holdings include Bank of the Ozarks at 3.42%; Tree.com, Inc. at 2.98%; California Republic at 2.89%; PacWest Bancorp at 2.69%; and FCB Financial Holdings, Inc. at 2.62%.

T. Rowe Price Financial Services Fund

The T. Rowe Price Financial Services Fund was established in 1996 and is managed by Gabriel Solomon. It seeks to generate long-term growth of capital and a modest level of income by investing a minimum of 80% of the fund's $652.61 million assets in common stock of companies operating within the financial services sector. The fund manager has the ability to invest in companies that provide financial software or those that derive at least 50% of revenue from conducting business in the financial services industry. Companies included in PRISX undergo a bottom-up analysis in an effort to evaluate potential for capital appreciation over time.

Since inception, PRISX has generated a 10-year annualized return of 5.56%, with an expense ratio of 0.87%. No upfront or deferred sales charges are assessed to investors, but a minimum of $2,500 is required as an initial investment in nonqualified accounts. Top holdings include JPMorgan Chase & Co. at 4.84%; Citigroup, Inc. at 4.77%; Bank of America Corporation at 4.11%; State Street Corporation at 3.21%; and First Niagara Financial Group at 3.02%.

Fidelity Select Banking Portfolio

The Fidelity Select Banking Portfolio Fund is managed by John Sheehy and was established in 1986. It seeks to provide investors with capital appreciation by investing in common stock of companies operating within the banking industry. Sheehy and the investment management team invest a minimum of 80% of the fund's $670.92 million assets in domestic and foreign issuers of banking organizations, each of which undergoes a fundamental analysis to determine financial stability and industry position.

FSRBX has generated a 10-year annualized return of 2.03%, with an expense ratio of 0.79%. Investors are not charged an upfront or deferred sales charge for purchase or redemption of shares, but an initial investment of $2,500 is required for nonqualified accounts and qualified accounts. Top holdings include Wells Fargo & Company at 10.49%; U.S. Bancorp at 7.15%; Bank of America Corporation at 5.79%; JPMorgan Chase & Co. at 4.92%; and Citigroup, Inc. at 4.90%.

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