Investor Attention Now Focuses on Troubled Banks and Thrifts

Financial-stock mutual funds gained 61% in 1991, 35% in ’92 and are up 12% year-to-date, on average, versus 36%, 9% and 3.5% for general stock funds.

Now what? Many fund managers say they’ve shifted their focus--away from the healthiest banks and S&Ls; and toward those still burdened with problem loans.

David Ellison, head of the Fidelity Select Savings & Loan fund (phone: 800-544-6666) puts it this way: The key to making money in any market is to ask, “Where can I buy depressed assets that have stopped going down?” For that reason, his fund now is heavy with banks and S&Ls; that many investors view as too risky--such as Citicorp and North Side Savings in the East, and California Federal and Coast Federal in Los Angeles.

Phil Dubuque, senior manager of the Financial-Invesco Financial Services fund in Denver (800-525-8085), agrees that bigger, still-recovering banks are worth the risk. He figures that those institutions--such as Citicorp and Chase Manhattan--have much more cost cutting ahead of them, which will indirectly boost profit.

Another fund theme: Look for takeover candidates, as the megabanks grab market share nationwide. James Schmidt, at the John Hancock Freedom Regional Bank fund in Boston (800-225-6258), sees Baltimore Bancorp and BankSouth in Atlanta as two targets.