TSC Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking solid outperformance on a total return basis.

Financial-services funds rallied this week as banks including Citigroup ( C) and Goldman Sachs ( GS) reported better-than-expected quarterly results, helping company shares rebound from declines of as much as 90%.

The stalling of so-called cram-down legislation in the U.S. Senate may help banks extend gains. The law would enable bankruptcy judges to rewrite all aspects of a troubled loan. Without sufficient votes, the cram-down may be watered down to cover fewer loans or given an early sunset date if a compromise can be reached at all.

TheStreet.com Ratings

For the five trading days through Thursday, the average financial-sector fund we track gained 2.5%, excluding inverse funds that sell short banks, real estate investment trusts, insurance companies and brokerage firms. It was the best-performing industry group.

Citigroup, up 32% in the five days, recorded a first-quarter profit of $1.6 billion. Ironically, the same mark-to-market accounting philosophy forcing banks to take losses on securities held required Citigroup to book $2.5 billion in unrealized gains on the drop in market value of its own outstanding debt. Goldman Sachs had better-than- expected earnings as a surge in trading revenue outweighed asset writedowns.

The best-performing financial fund this week is the First Trust Financial AlphaDEX Fund ( FXO), gaining 8.6%. On top of Citigroup, other holdings include E*Trade Financial ( ETFC), up 69%; Huntington Banchares/OH ( HBAN), up 54%; and Protective Life ( PL), up 19%. Bank of America ( BAC) added 8.3% for the week. Bank of America is expected by analysts to report stronger lending from its Countrywide Financial unit when it reports first-quarter earnings on April 20.

The only top-performing financial fund listed below rated as a "buy" is the Jennison Financial Services Fund ( PUFBX), benefiting from an international mix of financial institutions. Top-name holdings include UBS ( UBS), up 13%; BNP Paribas ( BNPQF), up 9.5%; AXA ( AXA), up 6.2%; and Toronto-Dominion Bank ( TD), up 4.8%.

Best-Performing Financial Funds for the Week Ending Thursday
Fund Ticker Rating Fund Type 1 Week Total Return
First Trust Financial AlphaDEX Fund FXO E+ ETF 8.6%
PowerShares FTSE RAFI Financials Sector Portfolio PRFF D ETF 8.3%
Diamond Hill Financial Trends Fund Inc DHFT C- Closed-End 7.4%
SPDR KBW Bank ETF KBE D+ ETF 5.8%
ProShares Ultra Financials UYG D- ETF 5.5%
Fidelity Select Brokerage & Investment Mgmt Portfolio FSLBX E+ Open-End 5.3%
RevenueShares Financials Sector Fund RWW U ETF 5.2%
Rydex S&P Equal Weight Financial ETF RYF D+ ETF 5.0%
ProFunds Banks UltraSector ProFund BKPIX E- Open-End 5.0%
PowerShares Financial Preferred Portfolio PGF D+ ETF 4.6%
AIM Financial Services Fund FSFSX E Open-End 4.6%
Fidelity Advisor Financial Services Fund FAFSX E Open-End 4.4%
Fidelity Select Financial Services Portfolio FIDSX E+ Open-End 4.2%
Rydex 2X S&P Select Sector Financial ETF RFL U ETF 4.2%
Direxionshares Financial Bull 3X Shares FAS U ETF 3.8%
Hartford Global Financial Services Fund/The HGFAX D- Open-End 3.3%
Jennison Financial Services Fund PUFBX B- Open-End 3.3%
Diamond Hill Financial Long-Short Fund BANCX E Open-End 3.2%
Financial Select Sector SPDR Fund XLF D+ ETF 3.2%
Manning & Napier Financial Services Series Fund EXFSX U Open-End 3.1%
Alpine Dynamic Financial Services Fund ADFSX E+ Open-End 3.1%
iShares Dow Jones US Regional Banks Index Fund IAT D+ ETF 3.0%
ProFunds Financials UltraSector ProFund FNPIX E- Open-End 3.0%
WisdomTree International Financial Sector Fund DRF D+ ETF 2.9%
Senbanc Fund SENBX E- Open-End 2.9%
Source: Bloomberg & TheStreet.com Ratings

Stress-test results to be reported on May 5 are designed to add confidence to the banking system. This should increase bullish sentiment for the sector going forward.

For more information, check out an explanation of our ratings.

TheStreet.com Ratings, recently cited for Best Stock Selection from October 2007 through February 2009 , is an independent research provider that combines fundamental and technical analysis to offer investors tremendous value in volatile times. To see how your portfolio can use this research, click here now!
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.

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