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Investors showed renewed confidence in the U.S. financial system after
Bank of America
announced plans to raise capital after recent
revealed shortfalls. That optimism carried over to the
and exchange traded funds that hold them.
Treasury Secretary Timothy Geithner evaluated 19 major
and found that nine didn't need additional capital, including
. The remaining 10
are trying to tap non-governmental sources, suggesting that liquidity has returned to the financial markets.
Investors embraced the banks' plans. During the five trading days through May 7, financial fund advanced 8.6% on average, excluding inverse funds that sell securities short. That's double the rate of the S&P 500 Index.
The best performing financial fund was the 300% leveraged
Direxion Daily Financial Bull 3X Shares
, which rose 28%. The fund got a boost from
Capital One Financial
, which gained 58% after it said it wouldn't need additional capital.
The fund also holds Bank of America, which gained 51% after executives laid out plans to convert preferred equity into common equity. The company must raise $33.9 billion to weather two years of weak economic conditions.
The best performing open-end fund, the
ProFunds Banks UltraSector ProFund
, gained 25% this week on half as much leverage. The fund bets on banks and thrifts using 150% leverage. The strategy helped the fund take advantage of the 39% gain of
, which raised $120 million in new capital. It also benefited from the 30% rise of
Fifth Third Bancorp
, which committed to raising $1.1 billion from the private market even though it doesn't need to it because it passed its stress test.
The financial funds that lost money include three exchange traded funds that short the sector. The
ProShares Short Financials Fund
lost 10%, while the
ProShares UltraShort Financials Fund
dropped 21% and the
Direxion Daily Financial Bear 3X Shares Fund
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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.