06/14/08 - 10:30 AM EDT
Kevin Baker "> Kevin Baker The last thing new borrowers and their bankers want to see is higher interest rates. Bad news: Refinancing to avoid foreclosure is getting even more difficult.
On Thursday, the yield on 10-year U.S. government debt reached the pinnacle of a three-month, 94-basis-point rise. This benchmark closing at 4.2108% is up 17 basis points for the week and at its highest level this year. A basis point is 1/100th of a percentage point.
The elevated interest rates are not good for stocks, especially the financials. While the S&P 500 slipped 4.53% for the five trading days ending Thursday, June 12, the Dow Jones U.S. Financial Sector index dropped 7.14%.
When that financial-sector index, with about 250 members, is compared to the KBW Bank Index of 24 national money center banks and large regional institutions, we can focus in on the problem. The KBW Bank Index was nearly decimated, at -9.37% for the period, knifing down to its lowest level since October 2002.
Excluding the funds selling short the sector, the average financial fund we track lost 6.74% this week.
The Mortgage Bankers Association characterized pending foreclosures as being at the worst level in 30 years. Mortgage Insurance Companies of America witnessed two borrowers becoming delinquent for each one catching up on payments in April.
RealtyTrac estimated that one out of every 483 U.S. homes are in foreclosure. Plus, the level of foreclosures was 48.3% higher in May 2008 than the year-ago figure. In Florida, 1 in 228 households entered foreclosure in May, a rate only exceeded by 1 in 201 from Arizona, 1 in 183 in California, and worst of all, 1 in 118 in Nevada.
Today's report of the consumer price index rising 0.6% for the month of May to a year-over-year reading of 4.2%, nearly half of which is food and energy, further strains tight household budgets. To make matters worse, the U.S. Labor Department's unemployment rate popped up to 5.5% from 5% last month.
The worst performing fund this week is the Ultra Financials ProShares(UYG - Cramer's Take - Stockpickr), down 13.72%. The fund is 200% leveraged to the Dow Jones U.S. Financials Index, while the third-place ProFunds Financials UltraSector ProFund(FNPIX - Cramer's Take - Stockpickr) lost 10.53% being 150% leveraged to the same index.
No index member fell more than KeyCorp(KEY - Cramer's Take - Stockpickr), plunging 34.71%. KeyCorp cut its dividend -- the first cut after 43 consecutive years of increases.
The next two largest losses, of 26.47% and 23.64%, came from MGIC Investment Corp(MTG - Cramer's Take - Stockpickr), the biggest U.S. mortgage insurer, and PMI Group(PMI - Cramer's Take - Stockpickr), the largest bond insurer, on downgrades from Fitch. Financial guarantors, as a subgroup of financial insurance stocks within the index, fell an average of 17.37%, more than any other subgroup.
The second-worst-performing fund, ProFunds Banks UltraSector ProFund(BKPIX - Cramer's Take - Stockpickr), lost 12.54% for the period under review.
The fund allocation is 65.9% banks, including 14.1% Bank of America(BAC - Cramer's Take - Stockpickr) and 7.7% Wells Fargo(WFC - Cramer's Take - Stockpickr), and 29.4% diversified financial service companies including 11.4%JPMorgan Chase(JPM - Cramer's Take - Stockpickr) and 10.3% Citigroup(C - Cramer's Take - Stockpickr).
On top of a loss in KeyCorp, this 150% Dow Jones U.S. Banks Index leveraged fund lost 24.47% in FirstFed Financial(FED - Cramer's Take - Stockpickr), 23.24% in Citizens Republic Bancorp(CRBC - Cramer's Take - Stockpickr) and 22.88% in Washington Mutual(WM - Cramer's Take - Stockpickr).
The Citizens Republic loss came on the completion of a dilutive share offering. The WaMu fall coincided with UBS analyst Eric Wasserstrom's prediction of cumulative mortgage loan losses for the next three years, exceeding the high side of company estimates, pushing back a return to "profitability until 2010 or later."
Excluding the one unrated fund, all of the funds on our worst-performing list have ratings of D+ or lower, signifying a recommendation of sell.
| Worst Performing Utility Funds for the Week Ending Thursday June 12 | ||||||
| Fund | Ticker | Rating | Fund Type | 1 Week Total Return | ||
| Ultra Financials ProShares | UYG | E- | ETF | -13.72% | ||
| ProFunds Banks UltraSector ProFund | BKPIX | E- | Open-End | -12.54% | ||
| ProFunds Financials UltraSector ProFund | FNPIX | E- | Open-End | -10.53% | ||
| iShares Dow Jones US Regional Banks Index Fund | IAT | D- | ETF | -9.65% | ||
| Morgan Stanley Financial Services Trust | FSVAX | E- | Open-End | -9.42% | ||
| KBW Bank ETF | KBE | D- | ETF | -9.16% | ||
| First Trust/Gallatin Specialty Finance and Financial Opportunities Fund | FGB | U | Closed-End | -9.14% | ||
| Rydex Series - Banking Fund | RYKAX | E- | Open-End | -8.89% | ||
| Senbanc Fund | SENBX | E- | Open-End | -8.68% | ||
| John Hancock Bank and Thrift Opportunity Fund | BTO | D+ | Closed-End | -8.68% | ||
| KBW Regional Banking ETF | KRE | D- | ETF | -8.63% | ||
| Source: Bloomberg & TheStreet.com Ratings | ||||||
The only financial fund we track with a positive return this week is the UltraShort Financials ProShares(SKF - Cramer's Take - Stockpickr), up 14.01% with 200% negative leverage to the Dow Jones U.S. Financials Index.
The fund losing the least was the Royce Financial Services Fund(RYFSX - Cramer's Take - Stockpickr), off just 2.70%. The fund's best holding was Hilb Rogal & Hobbs(HRH - Cramer's Take - Stockpickr), popping 40.62% this week on a $2.1 billion buyout of this insurance broker from the Willis Group that may signal the beginning of increased merger and acquisition activity within the sector.
| Best Performing Utility Funds for the Week Ending Thursday June 12 | ||||||
| Fund | Ticker | Rating | Fund Type | 1 Week Total Return | ||
| UltraShort Financials ProShares | SKF | C- | ETF | 14.01% | ||
| Royce Financial Services Fund | RYFSX | C- | Open-End | -2.70% | ||
| PowerShares Dynamic Financial Sector Portfolio | PFI | D | ETF | -3.41% | ||
| PowerShares Dynamic Insurance Portfolio | PIC | D | ETF | -3.44% | ||
| PowerShares Financial Preferred Portfolio | PGF | D+ | ETF | -3.59% | ||
| Legg Mason Partners Financial Services Fund | SFSLX | U | Open-End | -3.80% | ||
| iShares Dow Jones US Insurance Index Fund | IAK | D | ETF | -3.85% | ||
| Franklin Mutual Series Fund Inc - Mutual Financial Services Fund | TEFAX | E+ | Open-End | -3.92% | ||
| Fidelity Select Insurance Portfolio | FSPCX | E+ | Open-End | -4.29% | ||
| KBW Insurance ETF | KIE | D | ETF | -4.35% | ||
| Source: Bloomberg & TheStreet.com Ratings | ||||||
