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Fed hike hits some funds
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February 4, 2000: 6:20 p.m. ET
Financial services, bond funds feel the sting as interest rates go up
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NEW YORK (CNNfn) - Fund manager Larry Puglia is bracing for tough times and more interest-rate hikes this year, but he's found some resilience in the financial services sector.
Puglia, of T. Rowe Price Financial Services Fund, expects to see growth in stocks like Citibank and American Express.
The fund, with $159 million in assets, is down 1.49 percent year to date as of Feb. 3, according to Morningstar. Still, it is the third-best performer out of 55 funds. The category is down on average 4.75 percent in that time.
"The increase in rates will begin to bite a bit," he said.
The Federal Reserve raised rates on Wednesday a quarter point, after three hikes last year. And financial services funds, always sensitive to increases in short-term rates, have been hit hard.
While the prognosis for the sector isn't so good because of expected rate hikes, Puglia says some of his core holdings, such as Citigroup (C: Research, Estimates) and American Express (AXP: Research, Estimates), are poised for growth and strong earnings.
"Both are positioned well globally to generate growth over the year," he said. "Financials have been resilient. When they go out of favor they march with the earnings."
Bond funds have also had a tough week on fears of interest rate hikes. Treasury securities fell Friday after the government reported strong job growth and record unemployment.
The top performers for the week ending Thursday among intermediate bond funds tracked by Lipper Analytical Services were WellsFargo Diversified Bond Fund, up 1.26 percent, followed by Investek Fixed Income Fund, institutional shares, up 1.03 percent.
Among the biggest were Davis Intermediate Investment Grade Bond Fund, off 0.22 percent, followed by PIMCO Total Return Fund III, administrative shares, down 0.13 percent for the week Jan. 27 through Feb. 3. 
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