The bank trade - why it's under pressure

James Gerrish

Market Matters

I've written numerous times about banks - the case for NOT being overweight the sector, and the risks inherent in a crowded trade. At the risk of repeating myself, banks offer non-defensive yield - given their earnings are tied to economic activity - which is weak. A lot of portfolio's that come across the desk are overweight the sector meaning they have significantly more than 28% of their balance in the big 4. Although banks are considered 'lower risk' investments, being overweight at this point in the cycle doesn't make sense. (given interest rates are at record lows, bad debt provisioning at record lows + wholesale funding costs at record lows). When these trends change, and they will, banks will experience an earnings headwind. The other interesting element to the bank trade is the impact of changing regulatory frameworks - specifically around capital requirements - more here (VIEW LINK)

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James Gerrish
Portfolio Manager
Market Matters

James is the Lead Portfolio Manager & primary author at Market Matters, a digital advice & investment platform with over 2500 members that offers real market intel & portfolios open for investment. He is also a Senior Portfolio Manager at Shaw and...

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