Financial Funds Sell Off Ahead of GE

Over the last week, the market was quiet, perhaps too quiet. The Dow Jones Industrial Average, S&P 500 and Nasdaq-100 each fell less than 1%. Meanwhile, the financial funds we track were on the move, sliding an average of 3.52% for the five trading days ended Thursday, April 10.

The poor banking sector performance may have been a harbinger of trouble for General Electric's(GE Quote) finance unit. Just prior to the end of the first quarter, the financial industry credit seizure forced GE to lower the presumed value of some of its securities held and prevented the sale of other financial assets.

Ultra Financials ProShares(UYG Quote) tops the worst-performing list this week, losing 8.18%. When financial stocks are contracting in value, being 200% long the Dow Jones U.S. Financials Index is double trouble.

By Thursday, the fund's holding of The First Marblehead Corporation(FMD Quote) hit an all-time low, plunging 42.80% for the period. This student loan securitization company suffered the loss after its bond guarantor filed for chapter 11 bankruptcy on Monday. As a result, First Marblehead's financing arrangement with Goldman Sachs(GS Quote) expired without completing a new $1 billion credit deal.

Another fund holding, America's third-largest mortgage insurer, Radian Group Inc(RDN Quote), sliced 21.76% off of its stock price after preemptively asking its lenders to waive the minimum credit rating covenant. Radian's record fourth-quarter loss of $721 million calls into question the company's ability to pay claims prompting downgrade worries.

The ProFunds Banks UltraSector ProFund(BKPIX Quote) gave up 7.66%, while the KBW Regional Banking ETF(KRE Quote) dove 6.97%. Three stock holdings common to both funds were Cathay General Bancorp(CATY Quote), down 17.30%; Frontier Financial Corp(FTBK Quote), down 17.19%; and Old National Bancorp(ONB Quote), down 16.21%. Investors are getting out ahead of expected first-quarter disclosures of rising loan defaults.

Worst Performing Financial Funds Ranked by returns for the week ended April 10
Fund	Ticker	Rating	Fund Type	1 Week Total Return
Ultra Financials ProShares	UYG	E-	ETF	-8.18%
ProFunds Banks UltraSector ProFund	BKPIX	E-	Open-End	-7.66%
KBW Regional Banking ETF	KRE	D-	ETF	-6.97%
John Hancock Bank and Thrift Opportunity Fund	BTO	D-	Closed-End	-6.83%
ProFunds Financials UltraSector ProFund	FNPIX	E-	Open-End	-6.25%
Morgan Stanley Financial Services Trust	FSVAX	E-	Open-End	-5.35%
Fidelity Select Banking Portfolio	FSRBX	E-	Open-End	-5.07%
Rydex Series - Banking Fund	RYKAX	E	Open-End	-4.94%
PowerShares Dynamic Banking Portfolio	PJB	D-	ETF	-4.94%
iShares Dow Jones US Financial Services Index Fund	IYG	D	ETF	-4.91%
Source: Bloomberg

For an explanation of our ratings, click here.

The only financial fund keeping its head above water this week is the UltraShort Financials ProShares(SKF Quote). The fund added 8.61% by being 200% negatively leveraged to the members of the Dow Jones U.S. Financials Index.

Best-Performing Financial Funds Ranked by returns for the week ended April 10
Fund	Ticker	Rating	Fund Type	1 Week Total Return
UltraShort Financials ProShares	SKF	C	ETF	8.61%
PowerShares Financial Preferred Portfolio	PGF	C	ETF	-0.09%
Burnham Financial Industries Fund	BURFX	B-	Open-End	-1.27%
PowerShares Dynamic Insurance Portfolio	PIC	D+	ETF	-1.30%
First Trust/Gallatin Spec Fin and Finl Opportunities Fund	FGB	U	Closed-End	-1.45%
iShares Dow Jones US Insurance Index Fund	IAK	D	ETF	-1.53%
Alpine Dynamic Financial Services Fund	ADFSX	U	Open-End	-1.53%
Davis Financial Fund	RPFGX	D-	Open-End	-1.55%
KBW Insurance ETF	KIE	D-	ETF	-1.72%
John Hancock Financial Services Trust	JEFSX	D+	Open-End	-1.87%
Source: Bloomberg

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