Recent data show that mutual funds are shifting money into the financial sector as fund managers lose interest in technology stocks and place their bets on blue chips.
Information from the investment research service TrimTabs.com shows that investors are again focusing on the financial sector, said Laurie Hunsicker, an analyst at Friedman Billings Ramsey & Co. TrimTabs said $46 million flowed into financial services stocks in the first seven days of August. The funds it track have about $4.3 billion in financials.
"It has been a long two brutal years that our sector has been out of favor," Ms. Hunsicker said. In late 1999 financials were losing about $200 million per month in the TrimTabs universe. Now it is the technology sector that is suffering outflows - including $131 million during the first seven days of August.
TrimTabs tracks only about a quarter of the assets invested in U.S. funds, but Ms. Hunsicker said the numbers are big enough to show a trend.
"The bottom line is: We are seeing a shift back," to financial services Ms. Hunsicker said. Banks and thrifts in particular are "flush with capital, which means that these companies can buy back stock, pay dividends, and buy each other in an attempt to manage their capital," all of which makes them interesting for investors.
Financial stocks are not the only ones that will benefit as investors' ardor for tech stocks cools, but Ms. Hunsicker said the new trend is especially heartening for financials, because boom for technology has contributed "very dramatically to outflows from the financial services sector."
Considering the "sizzling performance" of bank stocks, Carl Wittnebert, director of research at TrimTabs.com in Santa Rosa, Calif., said the numbers do not surprise him. He said the recent investment trend towards financial services could be short term, as investors shift to other sectors as soon as the upward performance of the financial sector reverses.
Sung Won Sohn, executive vice president and chief economist at Wells Fargo & Co., San Francisco, said that because interest rates are just about to peak, the time is right to buy interest-sensitive stocks, including financials.
"I think that banks have not been given enough credit for their earning power," Mr. Sohn said. "I see the gap between multiples in S&P 500 and bank stocks narrowing. That in itself would boost stock prices for banks," causing "rotational correction" between industry sectors. "Cisco is a great company," Mr. Sohn said, "but at a hundred times price earnings ratio, I would rather buy bank stocks."
In addition to sector rotation, Mr. Sohn said new money will flow into bank stocks rather than technology.
"If I own Yahoo and Cisco, I might be reluctant to sell it and pay taxes and commissions, but when I think about new savings, I am much more likely to buy attractive stocks like banks," which provide income through dividends. "In the future," he said, "new money will go to old economy stocks."