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The recently announced federal bailout of mortgage giants Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs) marks the end of a long process of deterioration stretching back nearly a year.
These two government-sponsored enterprises, or GSEs, play a crucial role in the U.S. financial system by backing about half of the mortgages issued in the country. So the government has an interest in making sure they don't fail.
Until recently they were considered very safe and stable, but the mortgage crisis has strained their balance sheets to the breaking point and forced them repeatedly to raise additional capital.
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Although the government's bailout plan has given a boost to the bonds issued by Fannie and Freddie, it has devastated the stocks of the two companies. The stocks had each already fallen around 90% this year when the bailout was announced, and afterward they lost most of their remaining value. Freddie Mac closed Friday at 46 cents; Fannie Mae was at 74 cents. As recently last October, both stocks traded at more than $60 a share.
This collapse has cost billions of dollars in losses for investors, including many mutual funds. In December, when the crisis was still in its early stages (as we can see now), we took our first look at the mutual funds with the biggest percentage of their portfolios in Fannie and Freddie. Then in July, when things had deteriorated and the possibility of a government bailout began to seem real, we revisited the issue.
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Now that the saga has come to an end -- mostly -- we thought we would take a final look at the funds most affected by the demise of the GSEs.
First, we'll take a look at the mutual funds with the biggest combined percentage of their portfolios in Fannie and Freddie. The following table shows the top 10, including each fund's category, the size of its asset base, the percentage of its portfolio in Fannie and Freddie, the combined holdings of the two (as of the most recent reported portfolio) and its year-to-date return as of Sept. 9.
| Total assets* | % in Fannie | % in Freddie | % in both combined | % YTD return** | |
|---|---|---|---|---|---|
Fidelity Select Home Finance (FSVLX) | $111.3 | 8.75 | 8.26 | 17.01 | -42.84 |
Touchstone Large Cap Value (TLCAX) | $24.6 | 6.22 | 5.57 | 11.79 | -37.02 |
Morgan Stanley Financial Services B (FSVBX) | $57.2 | 5.15 | 4.23 | 9.38 | -36.74 |
Schneider Value (SCMLX) | $228.3 | 4.65 | 4.09 | 8.74 | -24.25 |
Thompson Plumb Growth (THPGX) | $248.2 | 3.68 | 2.92 | 6.6 | -23.15 |
AIM Financial Services (FSFSX) | $298.5 | 4.6 | 1.46 | 6.06 | -23.62 |
DWS Dreman Concentrated Value (LOPEX) | $40.2 | 3.05 | 2.88 | 5.93 | -24.72 |
Harbor Global Value Institutional (HAGVX) | $65.2 | 1.98 | 2.75 | 4.73 | -20.66 |
Dreman Contrarian Large Cap Value (DRLVX) | $6.5 | 2.66 | 2.04 | 4.7 | -20.38 |
Fidelity Select Banking (FSRBX) | $265.6 | 2.81 | 1.21 | 4.02 | -12.67 |
* In millions. **As of Sept. 9.
This is very similar to the July list, except that it reflects more-recent portfolios. For seven of these funds, the newest portfolio report is from June 30, while the two Fidelity funds and Dreman Contrarian Large Cap Value (DRLVX) have July 31 reports. (Most of the earlier list was based on March 30 reports.)
Nine of these funds are the same as in the July list, with Dreman Contrarian the only newcomer. Eight were among the biggest holders mentioned in our first article back in December. Most of these funds appear to have been hanging on, betting on a turnaround by Fannie and Freddie that never came.
As before, the list consists mainly of financial sector funds and value funds, including two managed by deep-value-investing legend David Dreman and a pair managed by the Schneider brothers, John Schneider of Touchstone Large Cap Value (TLCAX) and Arnie Schneider of Schneider Value (SCMLX).
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