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Alternative Market Briefing

As bank stocks slide an investor finds opportunity

Thursday, May 24, 2018

Bailey McCann, Opalesque New York:

Banks have been a popular sector for hedge funds over the past few years. Managers that got in when banks were still in recovery mode have been able to ride the bounce back. But now, just as retail investors are starting to see the potential in banks, one fund is taking a step back and even shorting some of the stocks.

St. Louis-based FourthStone is a buy-and-hold bank fund that has been putting up high double-digit returns since 2012, by betting on banks and thrifts of all sizes. That rally may finally be losing some steam. "We have to be more disciplined than in recent years when evaluating a bank's return potential," Stone tells Opalesque. "Some names are at historic highs and it's tough to see significant upside during the next year given where we are in the cycle. That makes us a bit contrarian because there is strong retail interest in banks right now."

Stone may be on to something. Bank earnings beat market expectations in the first quarter, but bank stocks still took a hit. While the headline numbers looked good, banks haven't been doing much business and investors want to see more. As a result, bank stocks have been drifting downward in recent weeks. Even news that would seem to be good for banks, hasn't been able to stop the slide. Bank stocks were down broadly on Wednesday following news that Congress had successfully rolled back parts of Dodd-Frank. Bank of America, Citigroup and JP Morgan Chase were all down......................

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