Sector of the Week: Financials

This week I traveled from our Florida office to TheStreet.com's main office on Wall Street. Since New York City is the financial capital of the world and, more importantly, since the Federal Reserve spoke on interest rates Wednesday, I thought it appropriate to review the performance of the financial funds this week.

In leaving short-term rates unchanged at 5.25%, the Federal Open-Markets Committee signaled happiness with an economy expected to "expand at a moderate pace" while the housing market shows "tentative signs of stabilization" and inflation is "likely to moderate."

The Fed's economic endorsement prompted the Dow Jones Industrial Average to rally to a new all-time high of 12,682.57 Thursday.

The stable outlook for rates allowed the stocks in the PHLX/KBW Bank Index to continue their bull run and approach the record high set in December 2006. From the close of trading on Thursday, Jan. 25, through the close on Thursday, Feb. 1, the average financial fund rated by TheStreet.com Ratings rose 1.56%.

(FBRSX Quote)The FBR Small Cap Financial Fund , a relatively more volatile fund, with an E-plus rating, topped our list of best performers, returning 3.18% over the five trading days reviewed.

All of the fund's holdings are U.S. stocks, with 65.2% savings & loans, 24% banks, 5.2% REITS, 5.0% diversified financial services and 0.6% insurance.

FirstFed Financial (FED Quote) and Hudson City Bancorp(HCBK Quote) are the two largest holdings, but the fund's shares in Stancorp Financial Group (SFG Quote) and Pennfed Financial Services (PFSB Quote) rose the most.

Stancorp stock gained 9.45%, hitting a new high, on a fourth-quarter earnings surprise, and Pennfed added 5.58% after an analyst upgraded New York Community Bancorp (NYB Quote), which is acquiring Pennfed in an all-stock transaction.

The Fed Feel-Good Factor Top-performing financial funds for the week ending Feb. 1
Fund	Ticker	Rating	Fund Type	1 Week Total Return
FBR Small Cap Financial Fund	FBRSX	E+	Open-End	3.18%
ProFunds Finl Ultrasector-IV	FNPIX	B	Open-End	2.39%
Profunds Banks Ultrasector-IV	BKPIX	C+	Open-End	2.28%
Forward Emerald Bank & Fin-A	HSSAX	D+	Open-End	2.24%
Rydex Series Banking Fd-ADV	RYKAX	D	Open-End	2.16%
Schwab Financial Svs Fund	SWFFX	C+	Open-End	2.11%
Davis Financial Fund-A	RPFGX	B-	Open-End	2.10%
Rydex Series Finan Serv-Inv	RYFIX	B-	Open-End	2.06%
FBR Large Cap Financial	FBRFX	D	Open-End	2.06%
Morgan Stanley Fincl Svcs-A	FSVAX	D	Open-End	2.03%
Source: Bloomberg

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