Targeting strong banks built to weather financial storms

By focusing on strong deposit franchises, healthy balance sheets and capital generation, disciplined lending practices and diversified fee-based income streams, Fidelity Portfolio Manager Gerry Benson is favoring banks designed to perform through full economic cycles, not just favorable periods.

“Banks tend to rise and fall with the broader economy, making them especially sensitive in uncertain times,” explains Benson, who manages Fidelity^® Select Financials Portfolio (FIDSX). “While this sensitivity is unavoidable, we believe an emphasis on resilience can help support long-term outcomes.”

In leading the equity sector strategy, Benson seeks high-quality financial companies that he believes have the potential to deliver attractive growth and risk-adjusted return opportunities, as well as improving businesses that may be underappreciated by the market.

Of course, he also stays closely attuned to the broader investment landscape, which, at the start of 2026, appeared relatively calm. By the end of March, however, Benson notes that market conditions had become more volatile. Stocks reflected rising uncertainty, and investors began repositioning for a potentially more challenging environment.

“While geopolitical developments, including the U.S.-Israel conflict with Iran, may have accelerated this shift,” Benson says, “it’s important to understand that concerns had been building earlier amid rising global tensions and mixed economic signals.”

With banks exposed to these crosscurrents, Benson has sought to position the fund for a potentially less hospitable environment, while remaining consistent with a longstanding approach to evaluating and investing in lenders.

Fund holdings as of July 31 that fit this mold well include Wells Fargo (WFC), according to Benson, who notes that the firm has returned to growth mode following the lifting of a seven-year asset cap in June 2025. As a result, he believes the company is better positioned to pursue lending opportunities while leveraging its existing franchise strengths.

Elsewhere, he points to Cleveland-based KeyCorp (KEY), a regional player that stands out for its strong capital levels and diversified fee income streams. In addition, he says that the repricing of low-yielding securities and swaps could support profitability over time.

Further bolstering Benson’s view is Bank of Nova Scotia’s (BNS) 15% minority investment stake, which he sees as a strategic endorsement of KeyCorp’s long-term prospects.

“When capital markets become volatile, it’s often the strongest banks that are best positioned to navigate tougher environments,” Benson concludes. “By remaining focused on resilience and quality, these lenders may be better equipped to manage uncertainty and pursue opportunities as they arise.”

For specific fund information, including full holdings, please click on the fund trading symbol above.