7 Best Financial Funds to Buy and Hold

Rebecca Lake

Financial companies provide unique benefits to investors.

When Warren Buffett turns bullish on a stock sector, the market takes notice. In the last quarter of 2018, Buffett's focus shifted to financials, as he increased Berkshire Hathaway (ticker: BRK.A, BRK.B) stock holdings in some of the nation's largest banks. While banks lost some year-to-date gains in late March, financials finished the first quarter on a strong note. "The valuations of many financial stocks and banks in particular are extremely attractive," says Robert Johnson, a professor of finance at Creighton University. "From a value investing standpoint, banks have a much larger margin of safety than the average stock." Investors seeking to follow Warren Buffett's lead should consider these seven banking funds to buy and hold.

Fidelity Select Banking Portfolio (FSRBX)

Wells Fargo & Co (WFC), Bank of America Corp. (BAC) and SunTrust Banks (STI) are among FSRBX's top holdings. Nearly 64% of the fund's weighted toward regional banks, with 22.61% allocated to diversified banks. FSRBX is classified as a mid-cap value fund and is subject to the same economic risk factors as other financial funds. "If the U.S. and world economies go into a recession as a result of yield-curve inversion, bank stocks as a whole could fall," Johnson says. Through the end of March, the fund yielded a cumulative three-month total return of 11.85%, just shy of the S&P 500's 13.65%.

10-year returns: 14.88%

Net expense ratio: 0.77%

Vanguard Financials ETF (VFH)

VFH offers exposure to the financials sector as a whole, with the largest allocations focused on diversified banks and regional banks. Altogether, the fund holds 411 individual stocks, with JPMorgan Chase & Co. (JPM), Bank of America and Berkshire Hathaway topping the list of largest holdings. VFH is categorized as a high-risk fund but that's counterbalanced by a high-reward potential. A chief advantage of this financial fund over others like it is cost. Similar to other Vanguard ETFs it boasts a low expense ratio, allowing buy-and-hold investors to maintain a larger share of fund earnings over time.

10-year returns: 15.33%

Net expense ratio: 0.1%

T. Rowe Price Financial Services Fund (PRISX)

PRISX is a capital-growth focused fund with 34.1% of total assets concentrated in banks, followed by insurance, capital markets, finance and real estate. Wells Fargo, JPMorgan Chase and Citigroup (C) are listed in the largest of the fund's 97 holdings. Since inception, PRISX has outperformed the Lipper Financial Services Fund average and the Russell 3000 Index. This fund does have a moderately higher expense ratio, matched by a moderate to high risk profile. But PRISX notched a three-month return of 10.02% in the first quarter of 2019, suggesting that its capable of weathering bouts of market volatility.

10-year returns: 14.46%

Net expense ratio: 0.85%

Financial Select Sector SPDR Fund (XLF)

XLF is the largest financials sector ETF by assets under management, though it's not a strictly bank-focused fund. While the big four -- JPMorgan Chase, Bank of America, Wells Fargo and Citigroup -- are represented, the fund's largest holding by weight is Berkshire Hathaway. Cost-wise, XLF is a bargain compared with some of the other banking mutual funds included here. The current year-to-date return is 11.4%, with a yield of 2.05%, positing a potentially bright outlook for 2019 and beyond.

10-year returns: 14.89%

Net expense ratio: 0.13%


KBE tracks the S&P Banks Select Industry Index, which includes asset management and custody banks, regional banks and diversified banks. Fund holdings include larger national banks as well as alternative financial companies, most notably LendingTree (TREE), which is the most heavily weighted asset. Year to date, KBE has kept pace fairly well with its underlying index, returning 12.35% to the S&P Banks Select Industry Index's 12.46%. This ETF may appeal to buy-and-hold investors looking for an equal weighting exposure to small-, medium- and large-cap companies across the financial sector.

10-year returns: 13.37%

Net expense ratio: 0.35%

Invesco KBW Bank ETF (KBWB)

KBWB tightens its focus on banks, with just 24 holdings altogether. The top five holdings, which include the big four banks, represent more than 40% of the fund's total assets. The fund makes room for smaller regional banks, such as BB&T (BBT) and Regions Financial (RF), alongside larger competitors, increasing diversification and minimizing overweighting risk. Since its inception in November 2011, KBWB has returned 14.9% to investors and year to date, it's up 9.74%, outstripping the 8.56% posted by the S&P 500 Financials Index.

Five-year returns: 7.24%

Net expense ratio: 0.35%

Miller/Howard Income-Equity Fund (MHIEX)

Since its inception in December 2015, the fund has delivered a three-year return of 7.56% to investors, driven in part by its financial sector holdings, which include Citigroup and Fidelity National Financial (FNF). As an income-equity fund, its concentration in banking goes against the grain. '"Many classic equity income strategies emphasize utilities and avoid banks," says Gregory Powell, deputy chief investment officer at Miller/Howard Investments. "Our discipline when selecting stocks for MHIEX looks at dividends, prospects for dividend growth, financial strength and consistent earnings growth, which has led to our current overweight position in banks."

Three-year returns: 7.56%

Net expense ratio: 0.78%

The best financial funds to buy long term.

-- Fidelity Select Banking Portfolio (FSRBX)

-- Vanguard Financials ETF (VFH)

-- T. Rowe Price Financial Services Fund (PRISX)

-- Financial Select Sector SPDR Fund (XLF)

-- SPDR S&P Bank ETF (KBE)

-- Invesco KBW Bank ETF (KBWB)

-- Miller/Howard Income-Equity Fund (MHIEX)