Fannie Freddie Fallout and ETFs

The government bailout over the weekend of Fannie Mae and Freddie Mac has resulted in huge losses today for shareholders of the two firms.

As of mid-day Eastern, the common stock of both Fannie (FNM) and Freddie (FRE) are down over 80% as a result of the takeover.

The takeover was ultimately a result of bad policy and ties that were too close between managers and politicians – for one example, see the 2006 post Crackdown on Fannie Mae Corruptocrats on conservative writer Michelle Malkin’s blog.

The ETF with the greatest exposure to Fannie Mae is the PowerShares FTSE RAFI Financials Sector Portfolio (PRFF) which at one time had a concentration of over 2% of the fund in Fannie.  However, that number had declined to less than 1% as of September 5 according to the InvescoPowerShares website.  As of September 5, no ETF had top 10 exposure to Freddie Mac.

One bright spot for ETF investors, there are 127 mutual funds that have a bigger concentration in Fannie Mae than PRFF.

The worst offender is the Fidelity Select Home Finance Fund (FSLVX) with about 20% of the fund’s assets tied up in FNM and FRE as of June 30.  Of course that percentage will have declined dramatically since then – we don’t know since mutual funds only report holdings occasionally throughout the course of the year.