Working Assets Money from money: a look at a financial services fund
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There's an old joke that goes like this: Ask a bank robber why he robs banks, and he'll tell you "Because that's where the money is." While that may be true, banks are no longer the only money game in town.
No doubt about it, banks are the first place most folks think of when naming environments where making money from money is job number one. But what about brokerage firms, insurance companies, real estate investment trusts (REITs), or any of a host of other financial services companies? If you're really into following the money trail, forget the old one-path-that-leads-to-one-door notion. Today, there are many roads leading to the moola. Picking the right ones is the trick.
The Fidelity Select Financial Services Portfolio has been around since December 1981. This fund has a long history and top-notch returns in its category, and, like other Fidelity Select Portfolios, it invests specifically in one sector--in this case, stocks within the financial services industry.
"My investment universe is comprised of 17 percent of the overall market," says Robert Ewing, portfolio manager for the Financial Services Portfolio. "So I can't promise the broader diversification that some of [Fidelity's] diversified funds can." What Ewing can promise to new and wanna-be investors is a portfolio of securities that's the result of intensive research in the financial services field, which has steadily proved to be a lucrative, albeit volatile, sector.
So how does he decide what to put into a portfolio that typically holds between 75 and 80 stocks? Very carefully. He and a group of analysts bounce ideas off each other on a daily basis; then, once a month, they get together to present their investment ideas formally. The result is a fund that's ranked No. 1 by Lipper Inc. over the past 15 years. As of press time, it had returned 10.69 percent this year, while the average total return was 7.2 percent.
Ewing's area of expertise is super-regional banks, money-center banks and credit card companies. Banks he follows include Bank of America Corp., one of the fund's top holdings, and First Union. The fund's other analysts also follow life insurance, property and casualty insurance, savings and loans, REITs, and the brokerage industry.
Investing in the financial services industry is not for the faint-hearted. Ewing says these stocks can be volatile because they tend to go down as interest rates go up, so investors can expect more instability from them than from others in the market.
As for what the future holds, even the money-followers don't have a crystal ball. Although a continued bull market and a low-interest-rate environment can't hurt the financial services industry, sector funds are small-bite investments and ought to represent only one part of a diversified portfolio of mutual funds.
Dian Vujovich is a nationally syndicated mutual fund columnist and author of101 Mutual Fund FAQs(Chandler House Press). For free educational mutual fund information, visit her Web site, www.diansfundfreebies.com.
At A Glance
Fund Name: Fidelity Select Financial Services Portfolio (FIDSX)
Managed by: Fidelity Investments
Portfolio manager: Robert Ewing
Total assets: $476.9 million
Top holdings: American International Group Inc., Bank of America Corp., Chase Manhattan Corp., Citigroup Inc., and Wells Fargo & Co.
Average Annual Return: 19.22% since its inception in 1981
Maximum load: 3%
Total expense ratio: 1.15%
Minimum initial investment: $2,500
Management fee: .59%
Phone: (800) 544-8888
Web site:http://www.fidelity.com
Figures are as of August 31, 1999.
Dian Vujovich is a nationally syndicated mutual fund columnist and author of 101 Mutual Fund FAQs (Chandler House Press). For free educational mutual fund information, visit her Web site, http://www.diansfundfreebies.com.
