6 Funds Plunging Back Into Financials

After a disastrous year for financial companies, some fund managers are loading up on banking stocks.


Big banking is back. Since the beginning of the year, a number of funds—some more well known than others—have leapt back into the financial sector. Financials as a category have blasted off this year with a 23 percent return, and managers are seeing more room for them to run. As Morningstar analyst Harry Milling puts it, "The one way is up from here." Based on Morningstar data, here are some of the funds that invested the most in the financial sector between the end of 2008 and mid-2009.

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Fidelity Independence (symbol FDFFX) and Legg Mason Value (LMVTX) are among the most well-known names on the list of funds making big bets in the financial sector. Currently, stocks of financial companies make up about a quarter of each portfolio. For Fidelity Independence, that allocation represents an increase in its share of financial stocks by more than 16 percent. In 2008, the fund's comanager Bob Bertelson got burned by materials stocks, and the fund lost almost half of its value. Now, Wells Fargo, Bank of America, and JPMorgan Chase account for Fidelity Independence's top three holdings, and the fund is up 29 percent year-to-date.

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Of Legg Mason Value, Morningstar analyst Bridget Hughes says legendary manager Bill Miller's move back into financials doesn't surprise her because "he has historically not shied away from troubled areas." After loading up on American International Group, Washington Mutual, and Freddie Mac, Miller was punished by the sector in 2008, but Hughes says, "I think he made a decision at some point early in 2009 that financials were going to be a leader coming out of this 18-month or so bear market that we saw." Legg Mason Value's portfolio currently includes Goldman Sachs, Wells Fargo, and JPMorgan Chase, as well as NYSE Euronext.

Another well-known manager, Ken Heebner of CGM funds, was stung by financials in 2008 but is also now creeping back into the sector. His CGM Focus fund (CGMFX) is famous for its whopping 80 percent return in 2007 (it fell 48 percent in 2008). But he also runs CGM Mutual (LOMMX), which tops the list of funds reinvesting in financial companies. That fund currently holds 30 percent of its assets in financials—up more than 17 percent since the end of 2008, according to Morningstar data. Heebner has made huge bets in sectors in the past, including energy and agriculture, and he has been in and out of the financial sector throughout this crisis. Goldman Sachs makes up almost 8 percent of the CGM Mutual's total assets, and according to the fund's most recent portfolio, it recently added shares of Bank of America and JPMorgan to its holdings.

With more than 30 percent of its holdings in financials, Federated Kaufmann Large Cap (KLCAX) has made a fairly large bet on a strong rebound in the financial sector—increasing its stake in financials by 16 percent since 2008. Says Morningstar analyst Harry Milling: "I'm not surprised to find them there because if there are companies whose earnings are supposed to be growing from a rather low point, it would be financial companies." Along with the addition of Goldman Sachs and Morgan Stanley to its most recent portfolio, Federated Kaufman recently ramped up its stake in Wells Fargo (the company now accounts for almost 7 percent of the fund's total assets.)

Lesser-known names like Van Kampen American Franchise (VAFAX) and ING Opportunistic Large Cap (IOLAX) have also been building up their financial holdings. ING Opportunistic Large Cap, for example, recently added JPMorgan, Wells Fargo, Goldman Sachs, and Bank of America.

Here's a snapshot of funds that have returned to financials in a big way during the first half of 2009:

Fund name Increase in allocation to financials Year-to-date return*
CGM Mutual 17.6 percent 9.9 percent
Van Kampen American Franchise 16.9 percent 18.9 percent
Federated Kaufmann Large Cap 16.5 percent 35.4 percent
Fidelity Independence 16.3 percent 30.1 percent
ING Opportunistic Large Cap 13.9 percent 22.5 percent
Legg Mason Value 9.3 percent 36.7 percent

*Allocation data represent the Dec. 31, 2008, through June 30, 2009, timeframe; returns are through Sept. 14, 2009.