As the Dow Jones Industrial Average pushed toward 12,000 this week, mutual funds that hold financial stocks had a strong performance. On average, the funds we rate have an average total return of 0.47% for the week as of Thursday's closing prices.
The best performer,
First Financial Fund
, is a closed-end mutual fund that returned 1.62%. Being a closed-end fund, it can serve as a leading indicator of investor interest in the financial sector by trading at a recent premium over net assets of 9.2%. This Boulder, Colorado, based fund has been managed by Nicholas C. Adams of Wellington Management Company, LLP since its inception in 1986.
As of March 31, 2006, the fund held 71.6% banks & thrifts, 18.4% diversified financial service & insurance companies, and 6.7% REITS. Top holdings include
First Republic Bank
First Regional Bancorp/CAL
. With a grade of C+, TheStreet.com Ratings considers this fund to be a "Hold." But continued positive performance bodes well for an upgrade.
That's not to say it was all smooth sailing for the financial sector funds. On Wednesday,
fell 17% after issuing a profit warning. Legg Mason incurred a $12 million mutual fund distribution fee, which trimmed earnings by 4 cents a share. The company also expects to earn 96 cents to $1.02 a share in its fiscal second quarter, far shy of the $1.16-a-share Thomson Financial consensus estimate.
lost 6% Wednesday after
Bank of America's
surprise announcement it would begin offering free online trades to clients with at least $25,000 on deposit.
Bank of America, which never has ranked as a leader in online trading, still plans to charge customers with less than $25,000 in deposits the standard $5 to $10 a trade commission charge. Shares of
were also dented by the announcement.
Still, the worst financial sector mutual funds still didn't do that poorly, as seven of the worst 10 managed to rise in value.
Topping the worst-performer list is the
Fidelity Select Brokerage & Investment Management Portfolio, which shed 0.61% as stock brokerages and investments banks had an off week.
As of June 30, the fund's top holdings were
American International Group
and UBS. E*Trade is also one of the fund's top holdings, and that stock fell 7.4% for the week ended Thursday.
The grade of B-, the lowest possible "buy" designation, shows that this fund has done well on a risk-adjusted-return basis over the last three years, but is on the bubble for a possible downgrade depending on its fourth-quarter results.
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.