What are common mutual funds an investor should consider for investing in banks?
Among the most popular mutual funds with investors and analysts for those interested in investing in the banking industry are the John Hancock Regional Bank Fund, Fidelity Select Banking Portfolio, DMS India Bank Index Fund and the Diamond Hill Financial Long-Short Fund.
The banking industry is part of the larger financial sector. Many of the top-performing funds with significant holdings in bank stocks also include holdings in other financial services firms, such as insurance companies or investment advisory firms. There are several financial sector funds that focus specifically on the banking industry.
John Hancock Regional Bank Fund
The John Hancock Regional Bank Fund (FRBAX) is, as the name indicates, concentrated on the higher growth potential section of the banking industry, that of regional banks. A number of the top-performing regional banks have outpaced the major U.S. banks in recent years with growth rates nearly twice that of the big four (Citigroup, JP Morgan Chase, Wells Fargo and Bank of America).
The Hancock fund is aimed at long-term capital appreciation but includes a minor focus on income as well. With an expense ratio of 1.28%, fund fees are lower than average for the sector. Some of the fund's primary regional bank holdings include super regional banks SunTrust and Cullen/Frost Bankers. This fund also has significant investments in major banks such as Wells Fargo, U.S. Bancorp and JP Morgan Chase. The fund's manager, Lisa Welch, previously worked as an examiner for the Federal Reserve Bank.
Fidelity Select Banking Portfolio Fund
Fidelity's Select Banking Portfolio Fund (FSRBX) commonly maintains significant holdings in all of the four largest U.S. banks, such as industry leader Wells Fargo. Additional holdings include Capital One Financial Corporation and the regional bank Prosperity Bancshares. An expense ratio of only 0.8% puts the fund's fees well below average, but the risk level for the fund is rated by Morningstar as above average. The stated goal of the fund is capital appreciation through fundamental analysis.
DMS India Bank Index Fund
For investors seeking to profit from both the banking industry and the emerging markets sector, there is the DMS India Bank Index Fund (DIIBX). This fund seeks to mirror the Nasdaq India Bank Index by investing in the individual stocks that comprise the index. Among the 25 common stocks that make up this index and that are purchased proportionately to their weighting in the index are ICICI Bank Ltd, HDFC Bank Ltd and Bank of India. The fund's fees and risk level are rated as average for the financial sector.
Diamond Hill Financial Long-Short Fund
Another slightly alternative investment for the sector is offered by the Diamond Hill Financial Long-Short Fund, Class A (BANCX). With a focus on value investing and capital appreciation, the fund manager utilizes both long and short positions to obtain maximum potential profits from the financial sector. Along with major U.S. banks such as Citigroup and JP Morgan Chase, the fund's primary holdings include both investment advisory firms and insurance companies that include AIG and MetLife Inc. Fees and risk for the fund are both considered average.
Other popular mutual funds with a banking industry focus include Emerald Banking and Finance Fund (HSSAX) and the T. Rowe Price Financial Services Fund (PRISX).