Smart Money May Be Warming to Big Bank Stocks

NEW YORK (TheStreet) -- Big banks such as Bank of America (BAC), Citigroup (C) and J.P. Morgan Chase (JPM) may be slowly finding favor with institutional money managers, according to a report published Wednesday from Keefe, Bruyette & Woods.

"It is possible that funds may be selectively increasing their weighting of large-cap bank stocks," wrote KBW analysts Melissa Roberts and Kelly Motta.

The report notes that prices of large-cap bank stocks have risen 3.8% in the second quarter through May 15. The move has outpaced the broader market and suggests purchases by large money managers are at least partly behind the surge.

The report found that institutional investors remained underweight financial stocks from January through March, the fourth consecutive quarter. And although they were already underweight going into the quarter, they reduced stakes even further in life insurers, large-cap banks, and diversified financials, KBW found.

And indeed, those three groups were the worst performers in the first quarter, reflecting that selling activity, falling 1.8%, 1.9% and 6.2% respectively. The subsector institutional investors underweighted the most in the first quarter was big banks.

Bank of America's stock price fell by nearly 14% in the first quarter, making it the worst performer among big bank stocks. Citigroup shares fell by almost 5% and J.P. Morgan saw shares drop by 3.2% compared with a rise of 0.44% in the S&P 500.

J.P. Morgan, meanwhile, is the best performer in the group so far in the second quarter, rising 10.25% as of Wednesday morning. Bank of America shares have risen 8.25% so far this quarter.

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