Investing.com -- Healthcare funds have seen "steady improvement" in flows after being weak for much of the year, according to analysts at RBC Capital Markets.
In a note to clients on Tuesday upgrading their rating of the sector to "Overweight," the strategists noted that flows into the sector "appear to be moving back into positive territory."
"[O]ur US healthcare team remains constructive in their performance outlook and their views also have a constructive tilt on valuation, demand, and the impact of lower interest rates," they wrote, citing their latest survey of RBC analysts' forecasts.
"Overall, the sector has one of the highest average scores across all questions. It stands out to us that healthcare scores highest on its demand assessment across all sectors in the survey," the analysts said.
Valuations of healthcare firms have turned "slightly expensive on an absolute basis," they added, but are still below average on a relative price-to-earnings ratio. Meanwhile, earnings per share forecast revisions by these companies have been "fairly balanced between positive and negative" changes, while sales updates have been "slightly positive," they said.
Conversely, flows towards the utilities sector, which had performed well lately thanks in part to declining interest rates, have stalled in recent weeks, according to the RBC analysts.
"Utilities has also been an [artificial intelligence] play recently, and the deterioration we’re seeing in that sector may reflect both the idea that rate cut trades have already been made and ongoing skepticism over the AI theme," the analysts said.
They subsequently cut their rating of the sector to "Market Weight."
Outside of healthcare and utilities, the RBC analysts reiterated their overweight stance on US financials and materials. Energy's outlook was also maintained, but the sector was placed on RBC's downgrade watch.
Regionally, the strategists said flows remain positive for the US, although recent levels are below all-time highs. Flows to Europe have been "getting less negative" but the improving trend has stalled, while flows to Australia and Canada have turned "slightly positive."