3 Financial Mutual Funds to Buy on Financials Rallying in July

Financial sector mutual funds have delivered solid gains since the beginning of July 2026, supported by a sharp rally in bank and financial stocks. The State Street Financial Select Sector SPDR ETF (XLF), a widely followed benchmark for the sector, advanced 8.2% between July 1 and Aug. 4, outperforming many other cyclical sectors as investors rotated into financial shares amid improving earnings expectations. The rally reflected growing confidence that large banks, insurers and capital markets firms would benefit from resilient economic activity and a favorable interest-rate environment.

Investor appetite for financial funds strengthened throughout the month. For the week ended July 29, investors poured a net $1.96 billion into U.S. financial sector funds, extending a broader trend of renewed interest in the group after strong corporate earnings helped lift market sentiment. The inflows suggested investors were positioning for continued strength in bank profitability rather than seeking traditional defensive sectors.

The sector's advance was fueled by expectations that banks would post resilient quarterly earnings, supported by healthy loan demand, stable credit quality and robust capital markets activity. At the same time, investors viewed the interest-rate backdrop as favorable. With rates remaining relatively higher and expectations for aggressive Federal Reserve easing fading, banks were seen as better positioned to sustain healthy net interest margins, while insurers benefited from higher investment income. Improving dealmaking and trading activity also boosted optimism for investment banks and asset managers.

Although technology continued to attract the largest sector inflows, financial mutual funds emerged as one of Wall Street's strongest-performing cyclical categories during July. The combination of robust fund inflows, resilient earnings expectations and supportive interest-rate dynamics enabled financial funds to generate attractive returns and reinforced their appeal as investors diversified beyond the technology sector.

Mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges that are mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

We have thus selected three mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy), have positive three-year and five-year annualized returns, have minimum initial investments within $5000 and carry a low expense ratio.

Fidelity Select Banking FSRBX primarily invests in common stocks of banking companies, including domestic and foreign issuers, selected through fundamental analysis of financial strength, industry position, and market conditions.

Matt Reed has been a lead manager of FSRBX since 2016. Three top holdings for FSRBX are Wells Fargo (7.9%), Bank of America (7.3%) and Truist Financial (5.7%).

FSRBX’s 3-year and 5-year annualized returns are 31.3% and 12.4%, respectively, and its net expense ratio is 0.69%. FSRBX has a Zacks Mutual Fund Rank #1. To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

T. Rowe Price Financial Services PRISX primarily invests in common stocks of financial services companies, while also using derivatives tied to the sector to support its investment strategy.

Matt Snowling has been the lead manager of PRISX since 2021. Three top holdings for PRISX are Bank of America (5.5%), Mastercard (4.8%) and JPMorgan Chase (4.3%).

PRISX’s 3-year and 5-year annualized returns are 23.4% and 12.2%, respectively, and its net expense ratio is 0.83%. PRISX has a Zacks Mutual Fund Rank #1.

Davis Financial RPFGX primarily invests in common stocks of financial services companies, selected using the Davis Investment Discipline based on companies with substantial financial services assets or revenue.

Christopher Davis has been the lead manager of RPFGX since 2014. Three top holdings for RPFGX are Capital One (9.5%), Wells Fargo (8.7%) and JPMorgan Chase (7.2%).

RPFGX’s 3-year and 5-year annualized returns are 24.3% and 12.9%, respectively, and its net expense ratio is 0.94%. RPFGX has a Zacks Mutual Fund Rank #2.

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This article originally published on Zacks Investment Research (zacks.com).

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