There are several good reasons for excluding banks from global portfolios, including leverage and increasing government regulation, according to Insync Fund Managers.
Insync recently announced it does not hold any banks in its global dividend growth fund. The fund manager also stated it preferred not to include Australian banks in its global fund, given “[their] overweight home loan portfolios, their regional outlook and recent dividend performance”.
According to Insync, banking stocks could be replaced with far better options in the market, such as global companies with less leverage.
“Banking is a commodity business – it is hard to differentiate their products from each other. Thus, where is the pricing power? How will it add to their share price or dividends?” the fund manager asked.
More Government regulation for banks would also mean higher capital and liquidity requirements, which Insync’s chief investment officer Monik Kotecha believes would eat into profits.
“You could not look at any developed market banks, particularly Australian banks, and comfortably add them to a high-conviction global portfolio given their risk profiles and cuts to dividends,” Kotecha said.
“It would be difficult to rate any Australian bank as truly global given their overweight home loan portfolios and their regional outlook,” he said.
