Fed Can't Stop the Bleeding in Financials Funds
Anyone who thinks the Federal Reserve has been cutting interest rates to bail out financial services companies hasn't been paying attention to stock prices in that sector recently.
On Tuesday the Fed threw the badly wounded financial industry a Band-Aid by cutting the fed funds target rate by 0.25 percentage points to 4.25%, only to see the financials stocks sell off even further. The carnage was so bad that the following day the Fed announced a coordinated program with other central banks to add liquidity to the banking sector.
These efforts didn't prevent the shares of
Citigroup
(C) - Get Citigroup Inc. Report
from falling 4.4% on Tuesday and another 5.3% on Wednesday. The nation's largest bank, which traded as high as $57 a share less than a year ago, closed on Dec. 13 at $31.01, down 9.72% for the week and off 44.3% for the year to date.
Citi had plenty of company in the loss column.
Washington Mutual
(WM) - Get Waste Management Inc. Report
tumbled 18.51% for the week while
National City
(NCC)
swooned 12.07%. The already-battered mortgage industry continued to retreat, with
Countrywide Financial
(CFC)
falling 16.69% and
TheStreet Recommends
MGIC Investment
(MTG) - Get MGIC Investment Corporation Report
down 12.23%.
Mortgage industry giants
Fannie Mae
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and
Freddie Mac
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both suffered double-digit percentage setbacks.
Fears that the credit crunch could spread to other areas of the money-lending business drove prices lower in the consumer finance sector.
SLM
(SLM) - Get SLM Corporation Report
, also known as Sallie Mae, took a 25.05% hammering, while
First Marblehead
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sank 20.32% and
IndyMac
(IMB)
surrendered 18.01%.
The Dow Jones financials index retreated 5.05% for the period, led southward by an 11.20% setback in the mortgage finance subindex, an 8.77% decline in the consumer finance group, a 6.40% backtracking in the banking gauge and a 7.09% retrogression in full-line insurance.
Of 60 financial services funds -- including open-end mutual funds, closed-end funds and exchange-traded funds but excluding leveraged and inverse funds as well as redundant classes of multiclass funds -- the average performance for the week ended Dec. 13 was negative 3.82%.
The bottom trio of performers -- one of which suffered a double-digit setback for the week -- all are leveraged funds. Investors who took positions in those funds in hopes of achieving outsized gains are now learning that multiplicative nature of geared investments can also produce extra painful losses.
ProShares Ultra Financials
(UYG) - Get ProShares Ultra Financials Report
, an exchange-traded fund that seeks to reproduce twice the daily performance of the Dow Jones Financials Index, slid 11.19%.
(BKPIX) - Get ProFunds Bnks UltraSect Inv Report
ProFunds Bank Ultra Sector (BKPIX), which tracks 150% of the Dow Jones U.S. Bank Index, lost 9.61%, and
(FNPIX) - Get ProFunds Financial UltraSector Inv Report
ProFunds Financial Ultra Sector (FNPIX), which tracks 150% of the Dow Jones U.S. Financials Index, lost 7.69%.
Fourth from the bottom was the
KBW Regional Banking ETF
(KRE) - Get SPDR S&P Regional Banking ETF Report
, which gave up 6.93%. It's largest holdings include
Hudson City Bancorp
(HCBK)
,
SVB Financial
(SIVB) - Get SVB Financial Group Report
and
Commerce Bankshares
(CBSH) - Get Commerce Bancshares Inc. Report
.
For a description of our ratings, click
here.
Only three financial services funds finished the week ended Dec. 13 with performances prefaced by plus signs, and two of them were inverse funds whose prices move opposite the trend in share prices.
ProShares Ultra Short Financials
(SKF) - Get ProShares UltraShort Financials Report
, an ETF that seeks to reproduce twice the inverse performance of the Dow Jones Financials Index, gained 9.84%.
Coming in second was
(RTPQX)
ProFunds Rising Rates Opp 10 (RTPQX), an open-end fund designed to move up when interest rates fall. This fund seeks daily investment results, before fees and expenses, that correspond to the inverse of the daily price movement of the most recently issued 10-year U.S. Treasury note. It rose 1.23%.
WisdomTree International Financial
(DRF)
, the third-best performer, held its head above water with a gain of 0.17%. The ETF's top holdings are
HSBC
(HSB)
and Banco Santander Intesa Sanpaolo.
For a description of our ratings, click
here.
Richard Widows is a financial analyst for TheStreet.com Ratings. Prior to joining TheStreet.com, Widows was senior product manager for quantitative analytics at Thomson Financial. After receiving an M.B.A. from Santa Clara University in California, his career included development of investment information systems at data firms, including the Lipper division of Reuters. His international experience includes assignments in the U.K. and East Asia.
