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Business

Hedge funds are investing in bank stocks at record pace

By
Carleton English
Published April 6, 2017, 12:01 a.m. ET

Come on, hedgies — you call bank stocks an alternative investment?

Hedge funds’ exposure to bank stocks hit record levels at the start of 2017, but many may have piled into the trade too late.

Hedge funds had 5.1 percent — or $33 billion — of their portfolios invested in financial institutions at the start of the year, according to a Bank of America Merrill Lynch report released Wednesday.

Both figures were record highs since Bank of America started tracking such data in 2005.

Among the hedge funds buying into the enthusiasm was Dan Loeb’s Third Point, which holds Bank of America and JPMorgan.

“On November 8th, our financials portfolio was 4.4 percent of the fund. One day later, it was 6 percent, one week later, 10.5 percent; one month later, 11.8 percent,” Loeb wrote in a February letter to investors.

Other banks favored by hedge funds are Citigroup and Wells Fargo.

Most bank stocks rallied immediately following the November election on expectations of a more Wall Street-friendly, regulation-light administration. The early buyers were quickly rewarded, but laggards may have lost.

While the KBW bank index is up 15 percent since the election, it is down 1.3 percent this year.

Even worse, hedge funds may have missed what is looking like the better play for 2017.

As funds money poured into financials, it was pulled out of technology, with financial weights growing by 2 percent and technology falling by 4.1 percent, the Bank of America report said.

The broader financial industry is up only 1.7 percent this year, while technology has gained a massive 10.2 percent, with other hedgie favorites like Apple and Facebook up more than 20 percent.