Credit Concerns Dog Financial Funds

Now that many of the subprime lenders have already gone bankrupt, the Federal Reserve announced that it will begin to increase scrutiny of subprime lenders later this year. Better late than never.

The Dow Jones Industrial Average and the significantly broader S&P 500 both set new record highs this week. But the funds holding financial stocks fell an average of 1.47%, held back by credit concerns.

TheStreet.com Ratings senior bank analyst Philip van Doorn explains that "despite strong earnings, bank stocks have lagged in this bull market, mainly because of credit quality concerns." And that "mortgage backed securities could be a ticking time bomb for banks." No wonder investors are shying away from the sector.

The financial services fund that took the hardest hit was the (FGB Quote)First Trust/Gallatin Specialty Finance and Financial Opportunities Fund (FGB), which fell 5.06%. ...