Investors are generally sour when it comes to bank stocks, and the financial sector as a whole trades at a low valuation to expected earnings.
But the great expansion of U.S. household wealth points to an opportunity for long-term investors to ride a wave of stable and growing earnings for certain financial service companies. These companies are de-emphasizing riskier and lower-margin lending businesses and cyclical investment-banking activities, while focusing on growing more stable fee-generating business.
Coverage of financial companies will often center on credit — after all, nearly everyone will borrow money at some point. Borrowing is risky for everyone, and low credit quality was a driving factor in the 2008 financial crisis, but banks and other financial service companies have learned that other financial services are less risky and more profitable.
“We see a significant tailwind for investment advice and asset management services,” Sykes said. He named Morgan Stanley MS as a beneficiary of the “wealth gathering trend.” An important part of its renewed focus on advisory services and asset management was its acquisition of E-Trade in 2020. Sykes also holds shares of Charles Schwab Corp. SCHW in the GABF portfolio. Schwab made a similar acquisition of TD Ameritrade in 2020.
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