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Warren Buffett Bullish on Banks in 2019: 3 Funds to Buy

Zacks Equity Research
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Warren Buffett seems convinced that America’s banks will surpass expectations this year. This is evident from the addition of a list of top bank stocks by Buffett’s Berkshire Hathaway (BRK.B). Further, President Trump’s sweeping $1.5-trillion tax overhaul has gone a long way in boosting America’s banking industry. The new tax code helped U.S. banks cut tax bills by a whopping $21 billion in 2018 alone.

Meanwhile, banking regulations have been reasonably modified to boost the overall performance. This is why it wouldn’t be wrong to expect players from the space to be relatively less burdened in 2019 and therefore a tad more efficient. Under such circumstances, investing in mutual funds with significant exposure to banks seems prudent.

Berkshire Hathaway Increases Stakes in Banks

As of the latest 13F filings, Berkshire Hathaway held roughly $76.1 billion worth of bank stocks at the end of 2018. Further, the filing shed light on the fact that America’s most celebrated bank investor, Buffett, has increased his bet on America’s biggest banks in the last quarter of 2018.

While Buffet added big banking players to his list, he trimmed his stake in only Wells Fargo (WFC). The worthy additions included Bank of America (BAC), U.S. Bancorp (USB), JPMorgan Chase (JPM) and PNC Financial (PNC).

It should also be noted that while bank stocks keep finding favor in Berkshire’s portfolio, Buffett has trimmed his bond holdings. Historically, while bank stocks benefit from rising interest rates and steepening yield curve, bonds are affected by such economic events.

Consider Bank Stocks for Value Investing

Ever since the end of the last recession started in 2009, it has been observed that investors targeting value stocks have focused more on banks. The reason for this is pretty simple. Value investing fundamentally screens stocks that have lower price-to-earnings ratio (P/E) than that of the broader market average.

Moreover, diversified banks have an average forward P/E ratio of less than 10 compared with the market average of around 15. This is what makes bank stocks attractive. Moreover, it is largely expected that P/Es for large consumer banks will continue to lag the industry average this year as well.

3 Best Mutual Funds to Buy Now

Given such positives, we have highlighted three financial mutual funds poised to gain significantly from a rising rate environment in the United States. These funds also carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.

We expect these funds to outperform peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

T. Rowe Price Financial Services PRISX seeks both capital growth and current income. Majority of its assets are invested in financial services companies. It may also purchase securities of companies involved in providing financial software. The fund uses fundamental bottom-up analysis in order to select securities.

This Sector-Finance product has a history of positive total returns for over 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

PRISX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.85%, which is below the category average of 1.44%. The fund has three and five-year returns of 17.7% and 9%, respectively.

JHancock Regional Bank A FRBAX invests a lion’s share of its assets in stocks of regional banks and other lending institutions, including commercial and industrial banks, savings and loans associations and bank holding companies.

This Sector-Finance product has a history of positive total returns for over 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FRBAXhas a Zacks Mutual Fund Rank #2 and an annual expense ratio of 1.21%, which is below the category average of 1.44%. The fund has three and five-year returns of 19% and 11.6%, respectively.

Fidelity Select Banking FSRBX seeks appreciation of capital. FSRBX normally invests at least 80% of assets in common stocks of companies principally involved in banking. The fund invests in both U.S. and non-U.S. companies.

This Sector-Finance product has a history of positive total returns for over 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FSRBXhas a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.77%, which is below the category average of 1.44%. The fund has three and five-year returns of 17.9% and 8.6%, respectively.

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