According to mutual fund researcher Morningstar, financial sector funds had 10‑year returns of 14.12 percent, through the first half of 2005. Only real estate funds (15.30 percent) and emerging markets bond funds (15.17 percent) have had better annualized returns.
Going back even further, to the past 30 years, financial services companies have outperformed the broad market. They offer stable earnings and relatively high yields.
Financial issues, which include banks and insurance companies and brokerage firms, also may offer enticing values these days. As of mid-2005, holdings in financial funds had by far the lowest price/earnings ratio (12.39) of any category listed by Morningstar, and the lowest ratio of price to cash flow.
Mutual funds specializing in financial stocks were down 2.25 percent in the first half of this year, due largely to fears of rising interest rates, so this may be a good time to buy. Morningstar’s “analyst picks” in this category are Davis Financial and T. Rowe Price Financial Services funds.