This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Fannie, Freddie Roil Financial Sector Funds

The uncertainty over when U.S. Treasury Secretary Henry Paulson may step in to use his new powers to recapitalize Fannie Mae (FNM) and Freddie Mac (FRE) roiled the financial sector this week. Paulson is also keeping the market guessing on how nationalizing these mortgage giants would look.

The common shares of Freddie Mac fell 46.8% in the five trading days ended Thursday, Aug. 21. Likewise, Fannie Mae crashed 41.1%. If the Treasury Department takes over and judges these companies to be insolvent, the common shares drop to zero.

The big question is, what will happen to the preferred shares? Worries that a government takeover might have a higher claim to assets than the preferred shares, held by upwards of 8,000 banks, sent financial stocks lower this week. Even if the preferred shares survive, their dividends may be cut.

The average financial fund we track, excluding inverse funds shorting the sector, sank 4.1% for the period.

The two worst-performing funds, both with 200% leverage, fell more than twice as much as the average financial sector fund. The Rydex 2X S&P Select Sector Financial ETF (RFL) and Ultra Financials ProShares (UYG) fell 10.6% and 9.2%, respectively.

Similarly, the 150% leveraged ProFunds Financial UltraSector ProFund (FNPIX), a holder of Freddie and Fannie, fell 7%.

The more narrowly focused ProFunds Banks UltraSector ProFund (BKPIX) sank 6.9% on 150% leverage. The fund holdings of Frontier Financial (FTBK) were down 23.2%, Sovereign Bancorp (SOV) was off 19.3%, and Cathay General Bancorp (CATY - Get Report) was down 12%. The drops in these funds can all be attributed to their sizable preferred security exposure.

Worst-Performing Financial Sector Funds for the Week Ending Thursday, Aug. 2
Fund Ticker Rating Fund Type 1 Week Total Return
Rydex 2X S&P Select Sector Financial ETF RFL U ETF -10.58%
Ultra Financials ProShares UYG E ETF -9.24%
ProFunds Financials UltraSector ProFund FNPIX E- Open-End -7.00%
ProFunds Banks UltraSector ProFund BKPIX E- Open-End -6.85%
KBW Regional Banking ETF KRE D- ETF -6.61%
Morgan Stanley Financial Services Trust FSVAX E- Open-End -6.20%
Rydex Series - Banking Fund RYKAX E- Open-End -6.02%
Financial Select Sector SPDR Fund XLF D+ ETF -5.80%
John Hancock Bank and Thrift Opportunity Fund BTO D Closed-End -5.70%
KBW Capital Markets ETF KCE D- ETF -5.13%
Source: Bloomberg & TheStreet.com Ratings

At the other end of the spectrum are the inverse funds. The 200% leveraged UltraShort Financials ProShares (SKF) rose 10.2%, and the unleveraged Short Financials ProShares (SEF) rose 4.9%.

Best-Performing Financial Sector Funds for the Week Ending Thursday, Aug. 21
Fund Ticker Rating Fund Type 1 Week Total Return
UltraShort Financials ProShares SKF C ETF 10.15%
Short Financial ProShares SEF U ETF 4.94%
Burnham Financial Industries Fund BURFX D+ Open-End 0.50%
PowerShares Dynamic Insurance Portfolio PIC C- ETF -1.30%
Rydex S&P Equal Weight Financial ETF RYF D- ETF -1.71%
Burnham Financial Services Fund BURKX E- Open-End -1.72%
Senbanc Fund SENBX E- Open-End -2.32%
Legg Mason Partners Financial Services Fund SFSLX U Open-End -2.42%
Royce Financial Services Fund RYFSX C+ Open-End -2.60%
Davis Financial Fund RPFGX E+ Open-End -2.65%
Source: Bloomberg & TheStreet.com Ratings

Economic reports in July showing the index of leading indicators sliding 0.7%, consumer price inflation up 5.6%, and producer price inflation up 9.8% annually cast doubt on a second-half rebound in the economy and on homeowners' ability to afford the mortgages on their homes. This may hasten Treasury Department action on Fannie and Freddie.

For an explanation of our ratings, click here.

RealMoney Barometer Poll
1 What would best describe your stance heading into the coming week of trading?
Bullish
Bearish
Neutral
2 Which of these sectors do you think is set to move up in the coming week?
3 Which of these sectors do you think is set to move down in the coming week?


View the results without voting

Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
CATY $27.75 0.00%
AAPL $123.25 0.00%
FB $83.30 0.00%
GOOG $548.34 0.00%
TSLA $185.00 0.00%

Markets

DOW 17,712.66 +34.43 0.19%
S&P 500 2,061.02 +4.87 0.24%
NASDAQ 4,891.2190 +27.8570 0.57%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs