Mark HulbertIndependent thinkers are buying banks
7/2/12 12:01 AM ET (MarketWatch)
CHAPEL HILL, N.C. (MarketWatch) -- It's time to bet on banks.
This will come as a big surprise, of course, to all of you who simply focus on the latest headlines. The daily drumbeat of awful news out of Europe, coupled with the recent downgrades of a number of top banks, has sent most traders running, rather than walking, away from this sector.
But think about it. Do you really think it's a good idea to base your trading strategies on the latest news? Just take the European sovereign debt crisis, for example, which has dominated the front-page headlines for at least two-and-a-half years now. How far has a focus on those headlines gotten you?
At some point in every trader's career, of course, he realizes that it's time to become proactive rather than simply react to those news headlines. Though mid-year is not traditionally viewed as the time to make resolutions to change behavior, now actually is as good a time as any to do so.
Here's some evidence to support your new resolution: You'll have some powerful company -- in the form of the top-performing investment advisers, who long ago committed themselves to this resolution as well. It's the worst performers who typically jump in and out of the market or individual sectors in reaction to the latest news.
To be sure, it won't be easy to live up to this resolution, as is evident in my comment above that it's time to bet on the banks. But, believe it or not, the top performers have recently been upgrading the banking sector at an above-average pace.
That at least is the conclusion that emerges from my review of the select group of advisers on whom I regularly focus in my weekly service Hulbert On Markets: What's Working Now. To construct that group, I first eliminate all advisers on the Hulbert Financial Digest's monitored list who failed to beat a buy-and-hold in the stock market over the last 15 years, and then pick just the 15 with the best 12-month returns.)
The accompanying table reports the industry sectors that have received the greatest number of upgrades from this group of top-performing advisers. The banking sector, as you can see, is tied for second in receiving the most upgrades.
It is interesting to note, however, that there is no one particular bank that the top performers are upgrading. In fact, there is only one bank right now that is recommended for purchase by even two of the top performers, and it was responsible for just one of the recent top-performer upgrades. That bank is
This means that the best way of following the lead of the top performers is via an exchange-traded fund that is benchmarked to the entire sector--such as the Select Sector SPDR Financial (XLF) or the iShares Dow Jones U.S. Financial Sector Index ETF (IYF) .
ETFs that you might consider if you're interested in the other recently-upgraded sectors include:
The iShares Dow Jones U.S. Industrial Sector Index fund (IYJ)
The
The iShares Dow Jones U.S. Oil & Gas Exploration & Production Index fund (IEO)
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