Thursday, September 14, 2017

Analysts are Loving Financials Right Now. Bummer!

As we've hinted a number of times herein, we presently like financials. The one thing that bothers me, however, is that Wall Street does too. 

Take a look. The orange bars represent analysts' buy recommendations for each sector. The light grey bars represent year-to-date returns:    

click to enlarge...

Note how healthcare (a 10% target weight for us) has turned in the second best ytd results while sporting a relatively low number of buy recommendations. And how about totally unloved utilities (2% target) and materials (15% target) tying for third in results, while hugely negative telecom (0% target) has more likes, and equally negative energy (recently upped our target from 6% to 8%) has even more. And how about Tech's (just reduced our target from 15% to 12%) phenomenal results against analysts' meh attitude toward the sector.

Ah, but financials (tied with industrials for our highest current target at 18%) gets the highest nod from analysts while producing disappointing relative results.

The note below the chart points to the legitimacy of the analysts' calls. But, you know, when you consider how often Wall Street misses the mark, I think I'd rather see them hating financials. 

Well, I'm seeing a glimmer of hope. The latest short interest numbers (the extent to which traders are betting on a decline) for XLF (the U.S. financial sector ETF we use) are suggesting traders are a little less bullish on the group:

click to enlarge...


Oh, and you clients out there, keep in mind that yours is a global portfolio, so don't sweat your 18ish% allocation to financials. A notable chunk consists of the stocks of companies domiciled elsewhere, and they've performed exceptionally well of late.

Here's a look at Europe's (blue line) and Emerging Markets' (orange line) financial stocks, along with the U.S.'s (white line):   ytd results noted on right axis...

click to enlarge...

I.e., you're doing fine...

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