Research Excerpts

Financials Still Historically Under-Invested<br>(Despite October Outperformance)

Posted on: Friday, November 4th, 2011

The following (green highlights) is an excerpt from our October 31st Keys To This Week report (Asbury Research subscribers can click the link to view it) that pertains to the Financial Sector.

Keys To This Week, a detailed weekly outline of key market factors that are most likely to influence US financial market direction during the upcoming week, is one of 8 different reports that Asbury Research produces at various intervals throughout the month.

Asbury Research’s Keys To This Week
US Market Sectors: Financials
October 31st, 2011

Chart 5 measures the flow of investor assets in and out of the various sectors of the S&P 500 via a pie chart that displays the percentage of sector bet-related assets, as represented by the Rydex Sector Funds, that are invested in each sector of the S&P 500, as represented by the iShares Select Sector SPDR ETFs.

The light blue highlights on the chart show that, through the end of last week, just 5% of all sector bet-related assets were being allocated to Financials – which is just about half the 8% daily historic average since 1998

These data indicate that, in addition to being technically oversold versus the S&P 500 as shown in Chart 4, Financials are also significantly under-invested versus the other sectors of the S&P 500 and thus amid favorable conditions for a one to several quarter trend of relative sector outformance to emerge.


Since we first mentioned the Financial Sector as a candidate for upcoming relative outperformance in our September 12th Keys To This Week report (Asbury Research subscribers can click the link to view the report), the Financial Sector ETF (XLF) has outperformed the S&P 500 ETF (SPY) by +8% — amid an environment that many investors were expecting more relative underperformance due to ongoing sovereign debt issues in Europe.

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