Citi Says Banks Are In, Tech Is Out Ahead of Rates Lift-Off

(Bloomberg) -- In the race to find the best hedges against higher rates and inflation, Citigroup Inc.’s chief global equity strategist is moving with the tide toward global financial stocks.

Like a growing number of his peers, Robert Buckland expects value stocks to provide a degree of protection against the market turbulence brought about by rising bond yields.

“I’m not necessarily sure that value makes you absolute money, but I think it can limit the damage of higher rates in a better way than owning tech and growth,” Buckland said by phone. “Financials should hold up a bit better and tech will get hit harder by this in terms of real yields.”

Banking stocks have come into favor recently as yields on 10-year Treasuries surpassed 1.5% amid worries over the Federal Reserve winding down its stimulus program. While the move has weighed on more expensive tech stocks, higher rates could boost banks’ earnings.

Societe Generale SA strategists also tout the banking sector for investors wanting to up their exposure to value segments, given lenders should benefit from rising bond yields while having limited exposure to risks such as higher energy prices and supply chain disruptions.

In Europe, bank stocks have overtaken technology as the top performing-sector year-to-date, with the Stoxx 600 Banks Index up 32%. Conversely, the Nasdaq 100 Index has fallen 6.4% since hitting a record high last month. Citigroup’s Buckland said global technology stocks could underperform by 10% to 15% if 10-year yields hit 2%.

READ: Banks May Be the Best Hedge Against Rising Yields: Taking Stock

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