T. Rowe Price Financial Services Banks on a Turnaround
This fund is a good way to bet on an economic rebound.
The rollout of COVID vaccines has raised the prospects of a return to economic normality. That’s good news for financial stocks, which are sensitive to shifts in the economy.
T. Rowe Price Financial Services (PRISX) invests broadly across the sector, in major and regional banks, payment networks, insurers and asset managers. Manager Gabriel Solomon builds his portfolio one stock at a time, digging into each firm’s fundamentals. He invests in companies of all sizes, with a three- to five-year holding period in mind. And he’s on the prowl for bargains: “The fund tends to have a contrarian and deep-value bias,” says Solomon, who works closely with a team of analysts around the globe.
That partiality came in handy in 2020. Financial stocks cratered in the spring amid uncertainties about the virus. Solomon beefed up stakes in Wells Fargo, Fifth Third Bank and Signature Bank, a New York–based commercial bank. He added new positions in Capital One Financial and Huntington Bancshares.
“Every stock has its own story,” says Solomon. Wells Fargo, for one, is still restoring confidence after its fake-account scandal. “The market is underestimating what the company will look like on the other side,” says Solomon. Signature was beaten down due to its exposure to New York real estate, but its balance sheet is “close to pristine,” he says.
Valuation guides Solomon’s buy and sell decisions, but he’ll hold on to fast-rising stocks, such as Visa, as long as long-term growth prospects justify the valuation. Last year, he unloaded Citigroup stock—not because it had risen 57% in 2019, but because of a worrying rise in turnover among middle managers. “It’s important to continue to ask ourselves, What are we missing? Is the situation the same as we thought it was, is it getting better, or is it worse?” says Solomon.
Looking ahead, Solomon is optimistic. Going through the pandemic, the sector survived “an incredible stress test and came out really strong,” he says. Consumer and commercial borrowers overall are in healthy shape, too, which could fuel loan growth. Against this backdrop, a rise in interest rates, a traditional boost to bank profits, would be “icing on the cake,” says Solomon.