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Dec 12, 2017

Investors pump $1.5 bn into financial stock funds

Sector optimism based on the prospects of lighter regulation and less tax

US investors put $1.5 bn into funds that buy financial stocks in the first week of December, lengthening a rotation into the sector based on optimism about the prospects of lighter regulation and lower tax from President Trump.

New cash entering financial sector stock funds in the first week of December lifted flows for the asset class this year to more than $25 bn, according to data provider EPFR.

The inflows marked the fourth consecutive week investors have added cash to the sector.

Comments by Jay Powell, President Trump’s nominee to serve as chair of the Federal Reserve, last month set the stage for a probable easing of financial regulations helped to reignite interest in financial stocks.

The progression of corporate tax cuts through Congress has increased the positive outlook. Republican leaders have said they are determined to pass a tax package before the end of the year.

Financial stocks have gained 6 percent since investors returned from the Thanksgiving holiday, outperforming the 1.3 per cent rise by the wider market.

As they readjust their portfolios into the year-end, investors have shifted out of healthcare, industrials and real estate funds. Another popular bond proxy, funds that invest in utilities, recorded their sixth week of outflows in the past seven weeks – up until the first week of December.

Funds that specialize in tech stocks, which investors have been selling in favor of financials of late, saw modest inflows after suffering the first outflows in eight weeks at the end of November.