‘Banks versus resources’ is the big call for Australian equity portfolio managers. Get that choice right and little more needs to be done to outperform the major Australian equity market benchmarks. The switch between sectors is a low frequency trade. Throughout the past five years, the balance of risks has favoured retaining positions in the banks in preference to an exposure to the resources sector. More recently, the balance of risks has moved toward a more neutral positioning. The resources/banks relative performance now resembles the outcome in the late 1990s. Then, several more years were required before evidence of a clear-cut cyclical swing would emerge but the incentive to choose one sector over the other had been neutralised. With the worst of the cyclical adjustment now largely over for the resources sector and banks facing their own cyclical and structural headwinds with falling interest rates and changes to their regulatory framework, a late 1990s style portfolio reappraisal once again seems warranted. There is more on the cyclical positioning of the resources sector in the 2 May PortfolioDirect investment report: (VIEW LINK)