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 December 31, 2011, the group had an annualized loss of 1.2%, while the S&P 500 achieved a gain of 2.9%. For the five- and three-year periods through December 3, 2011, the group had an annualized loss of 11.1% and a gain of 4.7% respectively, while the S&P 500 reported an annualized loss of 0.4% and a gain of 14.0%, respectively. During the past year, the Financial Services group reported a loss of 16.0% compared with a gain of 2.1% 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 that outperformed in 2011 is Fidelity Select Consumer Finance Fund (FSVLX). This fund’s investment objective is capital appreciation. The majority of assets are allocated to companies engaged in providing financial products and services to consumers. Management analyses each issuer's financial condition and industry position, as well as market and economic conditions to select investments. Fidelity Management & Research Company (FMR) is the fund's manager. FMR Co., Inc. (FMRC) and other investment advisers serve as sub-advisers for the fund. 

Another fund with a relatively better return in 2011 was the Forward Banking & Finance Fund A (HSSAX). This fund seeks long-term growth through capital appreciation. Income is a secondary objective.

Under normal conditions, the fund invests at least 80% of its net assets plus borrowings for investment purposes, if any, in a portfolio of equity securities (i.e., common stock, preferred stock, etc.) of companies engaged in the banking or financial services industries. The fund will usually emphasize smaller companies (those with a market capitalization of less than $1.5 billion). In addition, the fund will invest at least 25% of its net assets in both the banking and financial services industries.

Companies in the banking industry include U.S. commercial and industrial banking and savings institutions and their parent holding companies. Companies in the financial services industry include commercial and industrial finance companies, diversified financial services companies, investment banking, securities brokerage and investment advisory companies, real estate investment trusts, insurance and insurance holding companies, and leasing companies. Emerald Mutual Fund Advisers Trust (the Sub-Advisor) utilizes a growth approach to choosing securities based upon fundamental research that attempts to identify companies where the earnings growth rate exceeds that of their peer group and exhibit a competitive advantage in niche markets.


In the table below, we have listed 10 top-performing funds through December 31, 2011 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








Forward Banking & Finance Fund A








Legg Mason Financial Services Fund A








Fidelity Select Insurance Fund








Manning and Napier Financial Services Fund







Davis Financial Fund A







Mutual Financial Services Fund A







Burnham Financial Services Fund A







J Hancock Regional Bank Fund A







Diamond Hill Financial Lg-Sht A







Financial Services Objective Group









At the time of this article’s writing, the author did not have positions in any of the companies mentioned.