Risk is Only One Part of the Equation

Romano Sala Tenna

Katana Asset Management

During the past week, each of the major banks released a profit result or 3rd quarter update.  The reaction to ANZ’s release was perhaps the most telling.  Whilst ANZ’s result was far from terrific, the share price rallied 5.2% as the market re-based its overly negative outlook.  

The key pressures facing our banks are well documented:
1) Increased cost of funding
2) Potentially rising bad debts
3) Heightened competition/low growth
4) The requirement for more capital (hence the spectre of dilutive share placements)
5) The possibility that dividends will decline.   
From our standing these are ‘known knowns’ – ie they are largely factored in to the current share prices.  

But on our assessment, grossed up dividend yields are maintainable in a range of between 7 -9% versus the cash rate at 1.5%.   There are 2 parts to every investment equation: in this instance the risk looks to be in synch with the market leading yields.  

Whilst, we are less than 50% weighted to the banks at present, we do  intend to maintain our current exposure unless the risks materially increase, and potentially look to add on weakness.


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Romano  Sala Tenna
Portfolio Manager
Katana Asset Management

Katana Asset Management was founded in September 2003 as a boutique investment management firm. Katana employs an all opportunity investment mandate being style, sector and market cap agnostic.

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