Value Line’s Financial Services objective group is a collection of funds that has the stated policy of investing at least 50% of assets in common stocks of financial services and related companies. Functionally speaking, most funds in the group have a much higher percentage of assets allocated to this sector. You might suspect that such a narrow mandate would result in a group that owns very similar investments, but that isn’t necessarily the case.

While the vast majority of fund offerings here can, effectively, “go anywhere” within the confines of the finance sector (Legg Mason Financial Services A, SBFAX), fund mandates range from those that invest specifically in regional banks (John Hancock Regional Bank A, FRBAX) to those that focus solely on insurance (Fidelity Select Insurance, FSPCX). There are funds with a global focus (BlackRock Global Financial Services A, MDFNX), as well as those that use an index approach (ProFunds Financial UltraSector Investor, FNPIX, and, of course, Vanguard Financials Index, VFAIX). So, despite the apparent narrowness of the group’s breadth, there is still quite a bit of diversity in the group.

As with any sector-focused investments, these funds often move roughly in tandem directionally. So, if the finance sector is out of favor, the vast majority of funds in this group will post losses. The opposite is obviously true when the sector is in favor. It is important to remember, however, that the more highly focused funds, such as ALPS/Red Rocks Listed Private Equity A (LPEFX), can move swiftly, decisively, and often counter to the broader finance industry, depending on the focus. Also, good or bad news about one investment in a narrowly focused portfolio with just a few names in it can result in outsized moves compared to funds with broader diversification.

Over the long term, the Financial Services objective group has been a below-average performer relative to the broader market, as measured by the S&P 500 Index.  For the 10-year period ended July 31, 2012, the group had an annualized gain of 0.2%, while the S&P 500 achieved a gain of 5.3%. For the five- and three-year periods through July 31st, the group had an annualized loss of 9.3% and a gain of 7.8% respectively, while the S&P 500 reported annualized gains of 0.2% and 16.4%, respectively.  During the past year, the Financial Services group reported a loss of 4.7% compared with a gain of 5.4% for the S&P 500.

The Financial Services objective group currently has a higher Risk Rank of 4, indicating that funds in this group might not appeal to risk-averse investors. 

One fund with a better than the objective group year-to-date return for the seven months ended July 31, 2012 is Alpine Financial Services Fund A (ADAFX). This fund’s investment objective is long-term growth of capital and above average total returns.

No more than 80% of the fund’s assets are in the equity securities of certain U.S. and foreign companies engaged in the financial services industry. including commercial and industrial banks, savings and loan associations, community savings banks, and other thrift institutions, consumer and industrial finance and leasing companies, securities brokerage and investment advisory firms and insurance companies.

In particular, the fund invests a substantial percentage of its net assets in equity securities issued by banks that management believes have strong growth prospects or takeover potential. Such equity securities will primarily include common stocks and preferred stocks, which the fund may acquire through direct investments or private placements.

In managing the assets of the fund, the adviser (Alpine Woods Capital Investors, LLC) generally pursues a value-oriented approach. The adviser seeks to identify investment opportunities in equity securities of banks and other financial service companies that it believes are undervalued relative to the market and to the securities’ historic valuations. The equity securities of the financial institutions in which the fund invests are not subject to specific restrictions as to market capitalizations, however, it is expected that the fund’s investment program will emphasize smaller market capitalizations, including micro-cap. Factors that the adviser considers include fundamental factors such as earnings growth, cash flow, and industry and market–specific trends. The adviser expects that the fund’s investment strategy may result in a portfolio turnover rate in excess of 150% on an annual basis.

Another fund with a relatively better return through July 31, 2012 is the J Hancock Financial Industries Fund A (FIDAX). This fund seeks capital appreciation. Under normal market conditions, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in stocks of U.S. and foreign financial services companies of any size.

In managing the fund, the subadviser (John Hancock Asset Management, a division of Manulife Asset Management (US) LLC) focuses primarily on stock selection rather than industry allocation.

In choosing individual stocks, the subadviser uses fundamental financial analysis to identify securities that appear undervalued. Given the industrywide trend toward consolidation, the subadviser also invests in companies that appear to be positioned for a merger. The subadviser generally gathers firsthand information about companies from interviews and company visits.

The fund may invest in U.S. and foreign bonds, including up to 5% of net assets in junk bonds (bonds rated BB and below by Standard & Poor’s Corporation (S&P) or Ba and below by Moody’s Investors Service, Inc. (Moody’s) and their unrated equivalents). It may also invest up to 15% of net assets in investment-grade short-term securities.

A third fund with a relatively good return compared to the objective group through the first seven months of 2012 is Fidelity Adv Financial Services Fund A (FAFDX). The fund seeks capital appreciation. Under normal circumstances, the fund invests primarily in securities of companies principally engaged in providing financial services to consumers and industry. The fund invests in both domestic and foreign issuers. Management uses fundamental analysis of factors such as each issuer's financial condition and industry position, as well as market and economic conditions to select investments.

In the table below, we have listed 10 top-performing funds through July 31, 2012 that we follow in our Fund Advisor database.


10 Top Financial Services Equity Funds Performance


Fund Name


% Year-to-date

Total Return

% 1 Month



% 3




% 6 Month



% 5 Year




Fidelity Select Consumer Finance Fund








Alpine Financial Services Fund A








J Hancock Financial Indust. Fund A








Fidelity Select Banking Fund








Fidelity Adv Financial Serv. Fund A







J Hancock Regional Bank Fund A







Fidelity Select Financial Services Fund







FBR Large Cap Financial Fund







Burnham Financial Services Fund A







Emerald Banking & Finance Fund A







Financial Services Objective Group









At the time of this article's writing, the authors did not have positions in any of the funds mentioned