Most of the recently released economic data suggested that the economy is gradually gaining strength. This raised the possibility of a rate hike in near future. The rate increase will expand margins for brokerage firms, insurance companies, banks, and money managers. Furthermore, the increased interest rates would enable banks to earn more on the spread between interest rates for savings accounts and certificates of deposit. Meanwhile, the financial sector witnessed an encouraging second quarter earnings season. In this favorable environment, investors may find it profitable to invest in financial mutual funds that are poised to benefit from a possible rate hike.

Below we will share with you 5 buy-rated financial mutual funds. Each has earned either a Zacks Mutual Fund Rank #1 (Strong Buy) or a Zacks Mutual Fund Rank #2 (Buy) as we expect these mutual funds to outperform their peers in the future. To view the Zacks Rank and past performance of all financial mutual funds, investors can click here to see the complete list of funds.

Emerald Banking and Finance A (HSSAX - MF report) seeks long-term growth through capital appreciation. Income is a secondary objective. HSSAX generally invests at least 80% of its net assets in common stocks. Emerald Banking and Finance’s managers limit the fund investment to 50 companies and the fund invests primarily in US based companies. HSSAX has returned 21.3% over the last one-year period.

Kenneth G. Mertz II is the fund manager and has managed HSSAX since 1997.

Franklin Mutual Financial Services A (TFSIX - MF report) seeks capital growth. TFSIX invests a lion’s share of its assets in undervalued companies that are involved in the financial services domain. TFSIX may also invest in merger arbitrage securities and securities of distressed companies. TFSIX may invest a significant portion of its assets in non-US securities. TFSIX has returned 13.8% over the last one-year period.

TFSIX’s annual expense ratio of 1.44% is lower than the category average of 1.52%.

Davis Financial A (RPFGX - MF report) uses Davis Investment Discipline to invest a minimum of 80% of its net assets in securities issued by companies engaged in the financial services sector. These companies own financial services-related assets that are at least 50% of the value of total assets or earn a minimum of 50% of revenues from offering financial services. RPFGX has returned 14.4% over the last one-year period.

As of March 2015, RPFGX held 28 issues, with 9.68% of its total assets invested in Wells Fargo & Co (WFC).

Fidelity Select Banking Portfolio (FSRBX - MF report) seeks growth of capital. It invests a large share of its assets in banking companies. FSRBX invests in both domestic and non-US issuers using fundamental analysis. FSRBX has returned 13.8% over the last one-year period.

John Sheehy is the fund manager and has managed FSRBX since 2012

Schwab Financial Services (SWFFX- MF report) generally invests in equities of the financial services companies. These companies may include asset management firms, brokerage companies, commercial banks, insurance companies and real estate investment trusts (REITs). SWFFX has returned 12.2% over the last one-year period.

SWFFX’s annual expense ratio of 0.90% is lower than the category average of 1.52%.

To view the Zacks Rank and past performance of all financial mutual funds, investors can click here to see the complete list of funds.