Thapana Onphalai
The financial sector (NYSEARCA:XLF) has the highest proportion of “high quality” stocks, as of August, according to BofA Securities.
Since the tech bubble, high quality stocks traded at a big discount to low quality stocks. They have, since then, re-rated to a slight premium, but they’re not expensive.
“The last two decades were anomalous, in our view: hyper-accommodative policy and ultra-low rates back-stopped risk taking,” said Strategist Savita Subramanian. “Today’s quality premium is in line with its average premium pre-2000, marking simply a return to normalcy.”
Financials (XLF) have the highest percentage of stocks deemed “high quality” – by a rating of B+ or better by BofA analysts – at 70%.
They are followed by staples (XLP), industrials (XLI), utilities (XLU), and consumer discretionary (XLY), all of which are very close to 70% as well, surpassing the S&P 500 (SP500).
The S&P 500 Index (SP500) has about 60% of its stocks ranking B+ or better, followed by information technology (XLK), materials (XLB), health care (XLV), real estate (XLRE), and communication services (XLC).
Energy (XLE) ranks last at about 4%.
In addition, real estate sector’s (XLRE) market cap has shifted from 30% to 70% high quality, BofA analysts said.
