{"id":42336,"date":"2023-11-05T08:39:00","date_gmt":"2023-11-05T08:39:00","guid":{"rendered":"https:\/\/innodebt.com\/investing\/investors-should-be-patient-with-beaten-down-bank-sector-buy-side-fund-manager-says\/"},"modified":"2023-11-05T08:39:02","modified_gmt":"2023-11-05T08:39:02","slug":"investors-should-be-patient-with-beaten-down-bank-sector-buy-side-fund-manager-says","status":"publish","type":"post","link":"https:\/\/innodebt.com\/?p=42336","title":{"rendered":"Investors should \u2018be patient\u2019 with beaten-down bank sector, buy-side fund manager says"},"content":{"rendered":"

The clouds over bank stocks aren\u2019t expected to clear anytime soon, fund manager Dave Ellison said, but some names remain attractive based on valuation.<\/p>\n

Depending on whether you\u2019re optimistic or unenthusiastic about the sector, the outlook for bank stocks remains mixed.<\/p>\n

\n

In a moribund environment for banks with the collapse of Silicon Valley Bank, Signature Bank and First Republic Bank earlier this year, the Financial Select SPDR exchange-traded fund
\n XLF
\n is down by 4.9% this year, compared with a 9.6% gain by the S&P 500
\n SPX.<\/span>
\n The SPDR S&P Regional Banking ETF
\n KRE
\n has fallen 32.8% in 2023, and the KBW Nasdaq Bank Index
\n BKX
\n is down by 26.6%.<\/p>\n

\u201cYou make money in this space when operating conditions are difficult,\u201d said Ellison, who manages both the Hennessy Large Cap Financial Fund HLFNX and the Hennessy Small Cap Financial Fund HSFNX.<\/p>\n

\u201cThe bull case is that you\u2019ll make money when things are terrible. The bear case is the business sucks and no one knows how bad it will be,\u201d Ellison said.<\/p>\n

\u201cYou have to be patient,\u201d he said, because the outlook for banks both large and small remains uncertain for a variety of reasons. <\/p>\n

Net interest income has been under pressure due to competition from deposits and narrower profit margins on loans. <\/p>\n

Higher-for-longer interest rates are also expected to eat into credit quality for banks. <\/p>\n

There are worries over flight of deposits for higher-paying products outside of the banking system, such as brokerage money-market funds. <\/p>\n

Jitters around exposure to commercial real estate and unrealized losses in bank asset portfolios persist. The latter dynamic was a contributing factor in the demise of Silicon Valley Bank.<\/p>\n

Larger, more diversified banks are performing relatively well in this environment because a larger proportion of their profits comes from noninterest income such as fees on loans, credit-card fees\u00a0and trading revenue. But the big banks are also facing a dearth of Wall Street deal making such as initial public offerings and mergers.<\/p>\n

The Hennessy large-cap fund owns JPMorgan Chase
\n JPM,
\n +1.12%<\/bg-quote>
\n as the most well-diversified bank.<\/p>\n

\u201cEveryone loves JPMorgan \u2014 they have diversified revenue streams and good control of their deposits, but is the stock going to triple? No. Maybe it\u2019ll double in the next five years,\u201d Ellison said.<\/p>\n

The fund also owns Wells Fargo & Co.
\n WFC,
\n +2.74%<\/bg-quote>,<\/span>
\n which is \u201clooking cheap\u201d on one hand, but on the other hand the stock is trading where it was back in 2013 and has lost ground this year, he said.<\/p>\n

The fund also owns Berkshire Hathaway Inc.
\n BRK.A,
\n +0.66%<\/bg-quote>
\n as a \u201csafe place to hide,\u201d as well as a small position in Citigroup Inc.
\n C,
\n +3.53%<\/bg-quote>.<\/span>\n <\/p>\n

Bank of America Corp.\u2019s
\n BAC,
\n +2.90%<\/bg-quote>
\n stock price has come down, but it\u2019s not particularly in favor with bullish stock investors at the moment.<\/p>\n

Smaller banks are facing the emergence of a two-tiered financial system, with big, diversified banks taking deposits away from smaller organizations. <\/p>\n

Smaller banks are more reliant on their loan books to generate profits, but the cautious environment and increased regulatory costs are causing banks to make less risky loans, which takes money away from their bottom line.<\/p>\n

New York Community Bancorp
\n NYCB,
\n -0.21%<\/bg-quote>,<\/span>
\n which acquired Signature Bank early last year, remains attractive based on its valuation, along with WaFd Inc.
\n WAFD,
\n +3.58%<\/bg-quote>
\n and ConnectOne Bancorp
\n CNOB,
\n +5.96%<\/bg-quote>,<\/span>
\n he said.<\/p>\n

Looking ahead, it\u2019s going to take a few more quarters to see how bank credit quality plays out and when the Fed\u2019s interest-rate hike cycle ends, even as the market expects rates to stay higher for longer.<\/p>\n

Ellison said he\u2019ll be focused on nonperforming-loan and early loan-delinquency figures from the banks as credit quality moves to center stage. <\/p>\n

The four main pillars of banking \u2014 credit quality, interest rates, regulatory adjustments and accounting changes \u2014 have all been in play in the past 18 months.<\/p>\n

The regulatory regime is getting more challenging, with banks facing higher costs due to loftier capital requirements and compliance with various regulatory initiatives.<\/p>\n

These are times when stock-market investors can make profits if they have the courage to wade into a troubled sector, Ellison said.<\/p>\n

Ellison\u2019s funds showed strong gains after he boosted investment in the sector in 2020 when the COVID-19 vaccine was announced and the market recovered. Other down periods include 1990, when he bought Fifth Third Bancorp
\n FITB,
\n +5.63%<\/bg-quote>
\n for a dollar a share.<\/p>\n

He noted, however, that it\u2019s hard to predict when the current credit cycle will turn in favor of banks.<\/p>\n

Also read: <\/strong>Feds wrap up overhaul of Community Reinvestment Act and give banks more time to comply<\/p>\n<\/p><\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The clouds over bank stocks aren\u2019t expected to clear anytime soon, fund manager Dave Ellison said, but some names remain attractive based on valuation. Depending on whether you\u2019re optimistic or unenthusiastic about the sector, the outlook for bank stocks remains mixed. In a moribund environment for banks with the collapse of Silicon Valley Bank, Signature […]<\/p>\n","protected":false},"author":1,"featured_media":42337,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"content-type":"","footnotes":""},"categories":[32],"tags":[],"class_list":{"0":"post-42336","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-investing"},"yoast_head":"\nInvestors should \u2018be patient\u2019 with beaten-down bank sector, buy-side fund manager says | Innodebt<\/title>\n<meta name=\"description\" content=\"The clouds over bank stocks aren\u2019t expected to clear anytime soon, fund manager Dave Ellison said, but some names remain attractive based on\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/innodebt.com\/?p=42336\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Investors should \u2018be patient\u2019 with beaten-down bank sector, buy-side fund manager says | Innodebt\" \/>\n<meta property=\"og:description\" content=\"The clouds over bank stocks aren\u2019t expected to clear anytime soon, fund manager Dave Ellison said, but some names remain attractive based on\" \/>\n<meta property=\"og:url\" content=\"https:\/\/innodebt.com\/?p=42336\" \/>\n<meta property=\"og:site_name\" content=\"Innodebt\" \/>\n<meta property=\"article:published_time\" content=\"2023-11-05T08:39:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-11-05T08:39:02+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/innodebt.com\/wp-content\/uploads\/2023\/11\/1699173541_social.jpeg\" \/>\n\t<meta property=\"og:image:width\" content=\"1280\" \/>\n\t<meta property=\"og:image:height\" content=\"640\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"News Room\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"News Room\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/innodebt.com\/?p=42336#article\",\"isPartOf\":{\"@id\":\"https:\/\/innodebt.com\/?p=42336\"},\"author\":{\"name\":\"News Room\",\"@id\":\"https:\/\/innodebt.com\/#\/schema\/person\/742362d9a293429cc45829acf21919b4\"},\"headline\":\"Investors should \u2018be patient\u2019 with beaten-down bank sector, buy-side fund manager says\",\"datePublished\":\"2023-11-05T08:39:00+00:00\",\"dateModified\":\"2023-11-05T08:39:02+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/innodebt.com\/?p=42336\"},\"wordCount\":772,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/innodebt.com\/#organization\"},\"articleSection\":[\"Investing\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/innodebt.com\/?p=42336#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/innodebt.com\/?p=42336\",\"url\":\"https:\/\/innodebt.com\/?p=42336\",\"name\":\"Investors should \u2018be patient\u2019 with beaten-down bank sector, buy-side fund manager says | Innodebt\",\"isPartOf\":{\"@id\":\"https:\/\/innodebt.com\/#website\"},\"datePublished\":\"2023-11-05T08:39:00+00:00\",\"dateModified\":\"2023-11-05T08:39:02+00:00\",\"description\":\"The clouds over bank stocks aren\u2019t expected to clear anytime soon, fund manager Dave Ellison said, but some names remain attractive based on\",\"breadcrumb\":{\"@id\":\"https:\/\/innodebt.com\/?p=42336#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/innodebt.com\/?p=42336\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/innodebt.com\/?p=42336#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/innodebt.com\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Investors should \u2018be patient\u2019 with beaten-down bank sector, buy-side fund manager says\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/innodebt.com\/#website\",\"url\":\"https:\/\/innodebt.com\/\",\"name\":\"Funding Factories\",\"description\":\"Latest Finance News and Updates\",\"publisher\":{\"@id\":\"https:\/\/innodebt.com\/#organization\"},\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/innodebt.com\/?s={search_term_string}\"},\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-US\"},{\"@type\":\"Organization\",\"@id\":\"https:\/\/innodebt.com\/#organization\",\"name\":\"Funding Factories\",\"url\":\"https:\/\/innodebt.com\/\",\"logo\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/innodebt.com\/#\/schema\/logo\/image\/\",\"url\":\"https:\/\/innodebt.com\/wp-content\/uploads\/2023\/08\/ff-dark-logo-1.png\",\"contentUrl\":\"https:\/\/innodebt.com\/wp-content\/uploads\/2023\/08\/ff-dark-logo-1.png\",\"width\":780,\"height\":140,\"caption\":\"Funding Factories\"},\"image\":{\"@id\":\"https:\/\/innodebt.com\/#\/schema\/logo\/image\/\"}},{\"@type\":\"Person\",\"@id\":\"https:\/\/innodebt.com\/#\/schema\/person\/742362d9a293429cc45829acf21919b4\",\"name\":\"News Room\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/innodebt.com\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/innodebt.com\/wp-content\/uploads\/2023\/08\/avatar_user_1_1693518183-96x96.png\",\"contentUrl\":\"https:\/\/innodebt.com\/wp-content\/uploads\/2023\/08\/avatar_user_1_1693518183-96x96.png\",\"caption\":\"News Room\"},\"sameAs\":[\"https:\/\/innodebt.com\"],\"url\":\"https:\/\/innodebt.com\/?author=1\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Investors should \u2018be patient\u2019 with beaten-down bank sector, buy-side fund manager says | Innodebt","description":"The clouds over bank stocks aren\u2019t expected to clear anytime soon, fund manager Dave Ellison said, but some names remain attractive based on","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/innodebt.com\/?p=42336","og_locale":"en_US","og_type":"article","og_title":"Investors should \u2018be patient\u2019 with beaten-down bank sector, buy-side fund manager says | Innodebt","og_description":"The clouds over bank stocks aren\u2019t expected to clear anytime soon, fund manager Dave Ellison said, but some names remain attractive based on","og_url":"https:\/\/innodebt.com\/?p=42336","og_site_name":"Innodebt","article_published_time":"2023-11-05T08:39:00+00:00","article_modified_time":"2023-11-05T08:39:02+00:00","og_image":[{"width":1280,"height":640,"url":"https:\/\/innodebt.com\/wp-content\/uploads\/2023\/11\/1699173541_social.jpeg","type":"image\/jpeg"}],"author":"News Room","twitter_card":"summary_large_image","twitter_misc":{"Written by":"News Room","Est. reading time":"4 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/innodebt.com\/?p=42336#article","isPartOf":{"@id":"https:\/\/innodebt.com\/?p=42336"},"author":{"name":"News Room","@id":"https:\/\/innodebt.com\/#\/schema\/person\/742362d9a293429cc45829acf21919b4"},"headline":"Investors should \u2018be patient\u2019 with beaten-down bank sector, buy-side fund manager says","datePublished":"2023-11-05T08:39:00+00:00","dateModified":"2023-11-05T08:39:02+00:00","mainEntityOfPage":{"@id":"https:\/\/innodebt.com\/?p=42336"},"wordCount":772,"commentCount":0,"publisher":{"@id":"https:\/\/innodebt.com\/#organization"},"articleSection":["Investing"],"inLanguage":"en-US","potentialAction":[{"@type":"CommentAction","name":"Comment","target":["https:\/\/innodebt.com\/?p=42336#respond"]}]},{"@type":"WebPage","@id":"https:\/\/innodebt.com\/?p=42336","url":"https:\/\/innodebt.com\/?p=42336","name":"Investors should \u2018be patient\u2019 with beaten-down bank sector, buy-side fund manager says | Innodebt","isPartOf":{"@id":"https:\/\/innodebt.com\/#website"},"datePublished":"2023-11-05T08:39:00+00:00","dateModified":"2023-11-05T08:39:02+00:00","description":"The clouds over bank stocks aren\u2019t expected to clear anytime soon, fund manager Dave Ellison said, but some names remain attractive based on","breadcrumb":{"@id":"https:\/\/innodebt.com\/?p=42336#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/innodebt.com\/?p=42336"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/innodebt.com\/?p=42336#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/innodebt.com\/"},{"@type":"ListItem","position":2,"name":"Investors should \u2018be patient\u2019 with beaten-down bank sector, buy-side fund manager says"}]},{"@type":"WebSite","@id":"https:\/\/innodebt.com\/#website","url":"https:\/\/innodebt.com\/","name":"Funding Factories","description":"Latest Finance News and Updates","publisher":{"@id":"https:\/\/innodebt.com\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/innodebt.com\/?s={search_term_string}"},"query-input":"required name=search_term_string"}],"inLanguage":"en-US"},{"@type":"Organization","@id":"https:\/\/innodebt.com\/#organization","name":"Funding Factories","url":"https:\/\/innodebt.com\/","logo":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/innodebt.com\/#\/schema\/logo\/image\/","url":"https:\/\/innodebt.com\/wp-content\/uploads\/2023\/08\/ff-dark-logo-1.png","contentUrl":"https:\/\/innodebt.com\/wp-content\/uploads\/2023\/08\/ff-dark-logo-1.png","width":780,"height":140,"caption":"Funding Factories"},"image":{"@id":"https:\/\/innodebt.com\/#\/schema\/logo\/image\/"}},{"@type":"Person","@id":"https:\/\/innodebt.com\/#\/schema\/person\/742362d9a293429cc45829acf21919b4","name":"News Room","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/innodebt.com\/#\/schema\/person\/image\/","url":"https:\/\/innodebt.com\/wp-content\/uploads\/2023\/08\/avatar_user_1_1693518183-96x96.png","contentUrl":"https:\/\/innodebt.com\/wp-content\/uploads\/2023\/08\/avatar_user_1_1693518183-96x96.png","caption":"News Room"},"sameAs":["https:\/\/innodebt.com"],"url":"https:\/\/innodebt.com\/?author=1"}]}},"_links":{"self":[{"href":"https:\/\/innodebt.com\/index.php?rest_route=\/wp\/v2\/posts\/42336","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/innodebt.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/innodebt.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/innodebt.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/innodebt.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=42336"}],"version-history":[{"count":1,"href":"https:\/\/innodebt.com\/index.php?rest_route=\/wp\/v2\/posts\/42336\/revisions"}],"predecessor-version":[{"id":42338,"href":"https:\/\/innodebt.com\/index.php?rest_route=\/wp\/v2\/posts\/42336\/revisions\/42338"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/innodebt.com\/index.php?rest_route=\/wp\/v2\/media\/42337"}],"wp:attachment":[{"href":"https:\/\/innodebt.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=42336"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/innodebt.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=42336"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/innodebt.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=42336"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}