Stock pickers increasingly bet on banks
NEW YORK — By themselves, neither is very popular. But together, perhaps, they can win some fans.
Stock-picking mutual funds, which investors have been fleeing, are increasingly bulking up on bank stocks in hope of beating index funds and luring back dollars.
Actively managed mutual funds are struggling. Most have fallen short of the Standard & Poor’s 500 index for years, and the reason to pay their higher fees is for the chance to beat index funds. Only 27 percent of large-cap core mutual funds beat the S&P 500 this year, as of Dec. 9.
To improve their returns and lure investors back, stock pickers are increasingly betting on stocks of banks and insurers. Large-cap core mutual funds have an average of 17.8 percent of their portfolios invested in financial stocks, according to a review by Goldman Sachs. That’s 1.65 percentage points more than S&P 500 index funds have.
That may not sound like a big difference, but it’s the sector where active managers most differ from index funds, by far. The next-biggest “overweight” by actively managed funds is in the industrial sector. Managers have 0.68 percentage points more of their portfolios there than index funds do.
Actively managed mutual funds have been hemorrhaging dollars, but one niche within stock picking has remained popular.
Socially responsible mutual funds have drawn more investment dollars than they’ve lost in every 12-month period going back to late 2013, according to Morningstar. They attracted $2 billion in net investment over the year through November, for example.
That’s in stark contrast to the $163 billion that actively managed U.S. stock funds lost as a group over the same time.
Investors like that these socially conscious funds consider whether companies are helping or hurting the environment, promoting good corporate governance or reducing income inequality.
These factors could ultimately help protect or hurt companies’ profits over the long term, proponents say.
“Our numbers show that sustainable investing has become part of the mainstream,” said Lisa Woll, chief executive of the Forum for Sustainable and Responsible Investment, which also goes by the name US SIF. Hundreds of funds incorporate environmental, social or governance factors in their investment strategies.