Dump investment banks, buy alternative asset managers, says Oppenheimer

Brokerage Oppenheimer downgraded major U.S. investment banks including Goldman Sachs and Morgan Stanley in an unusual move on Tuesday, according to a report from Reuters, saying ​current valuations leave limited room for further gains despite a ‌favorable operating environment.

“Instead, it recommended investors sell large-cap investment banks and buy alternative asset managers, a group caught in a sharp selloff that many analysts view as ​overdone amid concerns about private-credit exposure,” according to Reuters.

Shares of Morgan Stanley Tuesday morning were ​down 1.4% in early trade, while Goldman Sachs fell about 1% after ⁠Oppenheimer downgraded both banks to "underperform" from "perform," according to the report.

“Among alternative asset managers, the brokerage recommended Ares ​Management, ⁠Blackstone and KKR,” according to Reuters. “Shares of alternative assets managers have lagged this year as investors grow wary of private-credit exposure and the risk of elevated redemptions from flagship ⁠funds, ​despite analysts arguing those concerns have been ​overdone.”

"We suggest that investors maintain their financial exposure by re-deploying the funds raised into the ​Alts," Oppenheimer said.

Oppenheimer also cut Citigroup ​and Bank of America  to "perform" from "outperform," sending their shares down about 1.3% each.

According to Reuters, “Oppenheimer ​said while it saw nothing in the immediate future to drive investment bank stocks off their growth or returns trajectory, it believes they have moved into the ​later part of an expansionary cycle.”

"While the cycle may well go ​on for another 12-18 months or more, we'd rather not wait around for ‌the ⁠warning signs to appear, and thus particularly in the case of the investment banks, we are more inclined to take the money and run," Oppenheimer analysts wrote.

“Instead of exposure to large-cap banks, investors should focus ​their resources on ​commercial banks like ⁠US Bancorp and PNC Financial Services, the brokerage said, given they are in a relatively early phase ​of expansion.