Sector of the Week: Financials
Kevin Baker
02/04/07 - 10:19 AM EST
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)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) and
Hudson City Bancorp(HCBK) are the two largest holdings, but the fund's shares in
Stancorp Financial Group (SFG) and
Pennfed Financial Services (PFSB) 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), 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 |
Next on the best-performer list is the
(FNPIX)ProFunds Financials UltraSector, which attempts to track 150% of the return of the Dow Jones U.S. Financial Sector Index.
Its largest holdings include financial giants such as
Citigroup(C),
Bank of America(BAC),
American International Group (AIG) and
JPMorgan Chase (JPM), and the median market cap of all holdings is $37.7 billion.
Diversified financial services account for 34.1% of assets, while banks make up 29.4%, insurance 21.6%, REITs 9.7%, savings and loans 3.3% and commercial services 0.78%.
The stocks that contributed the most to the fund's overall performance for the period include
Jones Lang Lasalle(JLL), which climbed 11.75% on a 21% increase in fourth-quarter profits and talk of new growth through acquisitions, and
Unumprovident(UNM), which was lifted 9.71% after reporting a 66% increase in fourth-quarter pretax earnings.
The one financial fund bucking the trend is the
First Financial Fund(FF), which fell by 0.54%. The closed-end fund's largest holdings include
First Republic Bank/San Francisco(FRC),
UBS AG(UBS) and
BankUnited Financial(BKUNA).
In aggregate, 48.5% of the fund's holdings are banks, 24.4% are savings and loans, 10.3% are insurance companies, 9.0% are in diversified financial services, 3.1% are REITS and 1.6% are in telecommunications. The value of its holdings actually rose during the week, notably First Republic Bank/San Francisco, which announced Monday that it's being acquired by
Merrill Lynch (MER).
As a result, First Financial Fund's discount to its net asset value widened. The fund's shares are now trading at a 4% discount to assets, compared with an average premium to NAV over the past year. Unlike open-end funds, which continuously issue and redeem shares, closed-end fund issue a fixed-number of shares that trade throughout the day like stocks. So their share prices can move independently of the value of their holdings. But at this level, First Financial looks a lot more attractive, since investors can pick up its holdings on the cheap.
Ironically, the First Financial Fund was the best-performing fund the last time I reviewed financial stocks for this weekly column, back on Oct. 13, 2006.
A Rising Tide Lifts Most Boats Worst-performing financial funds for the week ended Feb. 1. |
| Fund |
Ticker |
Rating |
Fund Type |
1 Week Total Return |
| First Financial Fund Inc |
FF |
D- |
Closed-End |
-0.54% |
| John Han Bk & Thrift Opp Fd |
BTO |
C |
Closed-End |
0.30% |
| Diamond Hill Financial L/S-A |
BANCX |
C+ |
Open-End |
0.72% |
| AXA Enterprise Glbl Fin Se-B |
EGFBX |
A |
Open-End |
0.75% |
| iShares S&P Glbl Finl Sector |
IXG |
B |
ETF |
1.02% |
| Fidelity Select Insurance Pt |
FSPCX |
C+ |
Open-End |
1.09% |
| Legg Mason Part Fincl Srv-C |
SFSLX |
C |
Open-End |
1.14% |
| Saratoga Adv Trust Fin/S P-A |
SFPAX |
C- |
Open-End |
1.15% |
| RBB Senbanc Fund |
SENBX |
D- |
Open-End |
1.21% |
| Wells Fargo Adv Spec Fin-A |
SIFEX |
C |
Open-End |
1.22% |
| Source: Bloomberg |