Retail investors have been net buyers of financial stocks for the last eight weeks, a bullish sign for the group and the longest such streak since 2008, according to Bank of America equity analysts. Using data from the bank's wealth management division — an industry heavyweight with $3.84 trillion in client balances and nearly 19,000 financial advisors — the analysts found that four-week average flows into the sector have been positive for "the longest stretch in our post-crisis data history," according to a Tuesday report by analysts led by Savita Subramanian. Bank of America's analysts cited the "surprising positive flow signal" as support for a broader thesis that investors should still plow funds into banks and other financial players this year. Banks have been analysts' favored trade since last year on anticipation that higher interest rates and a rebound in loan growth would buoy the group. That strategy remains intact, despite the Russian invasion of Ukraine, turmoil in the bond market and volatility in stocks, the analysts said. Retail interest in financial stocks has been a better predictor for performance than some professional investors, including hedge funds, according to the report. Another positive sign for future performance, they said, was that the bank's Merrill Lynch financial advisors were also most bullish on financials, with 86% liking the sector, topping energy and industrials. While retail investors and their advisors have shown enthusiasm for financials, the group is still underweight among big institutional players, including mutual fund managers and hedge funds. Mutual funds are 3% underweight the sector, but because they have historically been as much as 8% overweight financials, "ample room remains for [long-only funds] to gain further tilt to this sector," the Bank of America analysts wrote. Hedge funds have been adding to their positions in financials, but they are still about 50% underweight the sector, "leaving room for further expansion into this space," they wrote. Last week, a separate team of Bank of America analysts named their top picks for banks that will benefit from rising interest rates. Those names include Wells Fargo , M & T Bank , Signature Bank and Citizens Financial. Mike Mayo, the veteran bank analyst working for Wells Fargo, favors Bank of America for this rising-rate period. He recently hiked his price target to a Street-high $66 and said that the firm can manage headcount and expenses while earning more from loans. Finally, Morgan Stanley analyst Betsy Graseck said Monday in a note that Bank of America, Regions Financial , Signature Bank and Silicon Valley Bank were among the "best positioned" firms as interest rates rise. - CNBC's Michael Bloom contributed to this story.
The New York Stock Exchange in lower Manhattan on Nov. 24, 2020 in New York City.
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Retail investors have been net buyers of financial stocks for the last eight weeks, a bullish sign for the group and the longest such streak since 2008, according to Bank of America equity analysts.