Yes, valuations are stretched, yes competition for mortgages and deposits is hot and yes, the banks’ return on equity ain’t what it used to be.
So despite the headwinds, the big money managers still all own bank shares and will continue to while the banks make up such a big portion of the index. Does it guarantee they will make money for clients? No. But it probably helps them to not lose it. If you look at the latest monthly or quarterly reports from Australia’s big active managers – the sorts of funds that are benchmarked against the S&P/ASX 200 or the S&P/ASX 200 Accumulation Index – you can see this bank stock picking game play out.
Schroder is another; it had each of the big four in its top 10 at the end of March, but was still underweight the financials sector versus the index. Financials make up about 30 per cent of the S&P/ASX 200, and the bulk of that is the big four banks.On aggregate, domestic funds have been buying bank shares lately. They were small net buyers in the March quarter, a three-month period when the banks outperformed the S&P/ASX 200 by 6 per cent, chasing prices higher.