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Fed Can't Stop the Bleeding in Financials Funds

Richard Widows

On Tuesday the Fed threw the badly wounded financial industry a Band-Aid by cutting the fed funds target rate by 0.25 percentage points to 4.25%, only to see the financials stocks sell off even further. The carnage was so bad that the following day the Fed announced a coordinated program with other central banks to add liquidity to the banking sector.

These efforts didn't prevent the shares of Citigroup(C - Cramer's Take - Stockpickr) from falling 4.4% on Tuesday and another 5.3% on Wednesday. The nation's largest bank, which traded as high as $57 a share less than a year ago, closed on Dec. 13 at $31.01, down 9.72% for the week and off 44.3% for the year to date.

Citi had plenty of company in the loss column. Washington Mutual (WM - Cramer's Take - Stockpickr) tumbled 18.51% for the week while National City (NCC - Cramer's Take - Stockpickr) swooned 12.07%. The already-battered mortgage industry continued to retreat, with Countrywide Financial (CFC - Cramer's Take - Stockpickr) falling 16.69% and MGIC Investment (MTG - Cramer's Take - Stockpickr) down 12.23%.

Mortgage industry giants Fannie Mae (FNM - Cramer's Take - Stockpickr) and Freddie Mac (FRE - Cramer's Take - Stockpickr) both suffered double-digit percentage setbacks.

Fears that the credit crunch could spread to other areas of the money-lending business drove prices lower in the consumer finance sector. SLM(SLM - Cramer's Take - Stockpickr), also known as Sallie Mae, took a 25.05% hammering, while First Marblehead (FMD - Cramer's Take - Stockpickr) sank 20.32% and IndyMac(IMB - Cramer's Take - Stockpickr) surrendered 18.01%.

The Dow Jones financials index retreated 5.05% for the period, led southward by an 11.20% setback in the mortgage finance subindex, an 8.77% decline in the consumer finance group, a 6.40% backtracking in the banking gauge and a 7.09% retrogression in full-line insurance.

Of 60 financial services funds -- including open-end mutual funds, closed-end funds and exchange-traded funds but excluding leveraged and inverse funds as well as redundant classes of multiclass funds -- the average performance for the week ended Dec. 13 was negative 3.82%.

The bottom trio of performers -- one of which suffered a double-digit setback for the week -- all are leveraged funds. Investors who took positions in those funds in hopes of achieving outsized gains are now learning that multiplicative nature of geared investments can also produce extra painful losses.

ProShares Ultra Financials (UYG - Cramer's Take - Stockpickr), an exchange-traded fund that seeks to reproduce twice the daily performance of the Dow Jones Financials Index, slid 11.19%. (BKPIX - Cramer's Take - Stockpickr)ProFunds Bank Ultra Sector (BKPIX), which tracks 150% of the Dow Jones U.S. Bank Index, lost 9.61%, and (FNPIX - Cramer's Take - Stockpickr)ProFunds Financial Ultra Sector (FNPIX), which tracks 150% of the Dow Jones U.S. Financials Index, lost 7.69%.

Fourth from the bottom was the KBW Regional Banking ETF (KRE - Cramer's Take - Stockpickr), which gave up 6.93%. It's largest holdings include Hudson City Bancorp(HCBK - Cramer's Take - Stockpickr), SVB Financial(SIVB - Cramer's Take - Stockpickr) and Commerce Bankshares(CBSH - Cramer's Take - Stockpickr).

For a description of our ratings, click here.

Only three financial services funds finished the week ended Dec. 13 with performances prefaced by plus signs, and two of them were inverse funds whose prices move opposite the trend in share prices.

ProShares Ultra Short Financials(SKF - Cramer's Take - Stockpickr), an ETF that seeks to reproduce twice the inverse performance of the Dow Jones Financials Index, gained 9.84%.

Coming in second was (RTPQX - Cramer's Take - Stockpickr)ProFunds Rising Rates Opp 10 (RTPQX), an open-end fund designed to move up when interest rates fall. This fund seeks daily investment results, before fees and expenses, that correspond to the inverse of the daily price movement of the most recently issued 10-year U.S. Treasury note. It rose 1.23%.

WisdomTree International Financial (DRF - Cramer's Take - Stockpickr), the third-best performer, held its head above water with a gain of 0.17%. The ETF's top holdings are HSBC(HSB - Cramer's Take - Stockpickr) and Banco Santander Intesa Sanpaolo.

For a description of our ratings, click here.