Risk is only one part of the equation
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’ – i.e. they are mostly factored into 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 two parts to every investment equation: in this instance; the risk looks to be in synch with the market leading yields.
While 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.
4 stocks mentioned
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.