Popular Move Into Battered Financials Doesn't Pan Out
June 10, 2008
Many investors - both great and small - have bought bank and other financial stocks over the last year. Rationales for these purchases probably included "the worst was over" or "the stocks were cheap and more than reflected the problems in lending." Early this year in we noted that there was more money going into the popular Financial Select Sector SPDR (XLF) after it fell sharply - a rare flip-flop in normal fund investor buy-high/sell-low behavior.
How have investors done since moving into financial stocks? Not so well. Yesterday Financial Select Sector SPDR (XLF) was near the 52-week low, down about 15% from early February.
Barron's discusses the bargain hunt that hasn't led to many bargains so far:
After riding out the credit crunch, the subprime-mortgage debacle and the March collapse of Bear Stearns, investors in April and May began bargain-hunting in the group. But June struck like a thunderbolt, with Lehman Brothers (ticker: LEH), the new hedge-fund whipping boy, plagued by rampant rumors about its liquidity. There were reports Lehman planned in response to push up its earnings release and announce a rights offering to raise capital."
As far as we're concerned, we're largely staying away from financials until something REALLY dramatic happens and scares away fund investors - a big commercial bank failure, a Fannie / Freddie catastrophe - before we'll consider a broad recommendation to bottom fish financial sector funds. As we noted in February, it's not a true buying opportunity until only a few people want to buy.
Popular Move Into Battered Financials Doesn't Pan Out
Many investors - both great and small - have bought bank and other financial stocks over the last year. Rationales for these purchases probably included "the worst was over" or "the stocks were cheap and more than reflected the problems in lending." Early this year in we noted that there was more money going into the popular Financial Select Sector SPDR (XLF) after it fell sharply - a rare flip-flop in normal fund investor buy-high/sell-low behavior.
How have investors done since moving into financial stocks? Not so well. Yesterday Financial Select Sector SPDR (XLF) was near the 52-week low, down about 15% from early February.
Barron's discusses the bargain hunt that hasn't led to many bargains so far:
After riding out the credit crunch, the subprime-mortgage debacle and the March collapse of Bear Stearns, investors in April and May began bargain-hunting in the group. But June struck like a thunderbolt, with Lehman Brothers (ticker: LEH), the new hedge-fund whipping boy, plagued by rampant rumors about its liquidity. There were reports Lehman planned in response to push up its earnings release and announce a rights offering to raise capital."
As far as we're concerned, we're largely staying away from financials until something REALLY dramatic happens and scares away fund investors - a big commercial bank failure, a Fannie / Freddie catastrophe - before we'll consider a broad recommendation to bottom fish financial sector funds. As we noted in February, it's not a true buying opportunity until only a few people want to buy.