Life Preserver Has Investors, Financial ETFs Worried

August 20th at 11:00am by Tom Lydon

Worries about the fate of Fannie Mae (FNM) and Freddie Mac (FRE) are persisting, and it continues to drag down financial exchange traded funds (ETFs).

Investors seem increasingly convinced that if the government bails them out, their shares will plunge to zero, reports Alan Zibel for the Associated Press. Fannie Mae’s CEO reassured investors that a bailout isn’t imminent, but shares are still way down midday to their lowest point in nearly 20 years.

A government bailout package was unveiled on July 13 that included a plan to provide unlimited government loads to the mortgage giants. Critics say the bailout is too open-ended and could expose taxpayers to billions in potential losses.

Financial ETFs are breaking even so far in trading today:

  • iShares Dow Jones U.S. Financial (IYR), down 3.9% year-to-date
  • KBW Bank (KBE), down 28.3% year-to-date
  • First Trust Financials AlphaDEX Fund (FXO), down 21.9% year-to-date

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.