With all of the trouble financial stocks have been in lately, it may come as a surprise that the best-performing closed-end fund in the third quarter is a fund that focuses exclusively on banks and thrifts. What's not surprising are the positive returns from investments partially sheltered from the economic maelstrom.
Banks dominated the news again Friday. Before Congress passed Treasury Secretary Henry Paulson's financial bailout plan in the afternoon, Citigroup (C) was crying "foul!" on surprise news this morning that Wachovia (WB) had inked a $15 billion merger deal with Wells Fargo (WFC) . Citigroup, which had agreed to buy Wachovia on Monday, swiftly sank while Wachovia and Wells Fargo soared.
All three banks are holdings of the John Hancock Bank and Thrift Opportunity Fund (BTO) . The fund's 14.2% third-quarter return represented a bounce-back from the sector bottom in July, bringing the one-year damage to a negative 22.2% return.
Unlike Wachovia, down 77.4%, and National City Corp( NCC) , down 63.2% for the quarter while under SEC protection from short-sellers, breathtaking gains of 186.6% in UCBH Holdings( UCBH) , 98% in Trico Bancshares (TCBK) and 87.6% in Univest Corp of Pennsylvania (UVSP) top the fund's portfolio list of 58 double-digit or better gainers.
In second place is the Nuveen North Carolina Dividend Advantage Municipal Fund (NRB) , which pulled in a 7.9% gain with income exempt from federal and North Carolina income taxes. The largest positions include debts of the North Carolina Eastern Municipal Power Agency, the city of Charlotte, the county of Dare and the University of North Carolina at Chapel Hill. The fund, with a rating of B+, is worth investigating for North Carolinians looking to add exposure to the relative safety of municipal securities.
Also earning a buy rating of B+, the Blackrock Health Sciences Trust (BME) rose 4.6% in the third quarter. On balance, the fund's stock holdings appreciated by being grouped in the consumer non-cyclical sector. Stock holdings like Halozyme Therapeutics (HALO) , up 36.4%; InterMune (ITMN) , up 30.4%; Amgen (AMGN) , up 25.7%; and Genentech( DNA) , up 16.8%, are less susceptible to bad economic times as insured individuals don't scrimp on health care.
For more information, check out an explanation of our ratings.
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.