Here’s why Canada’s big banks keep on winning; There are was a lot of talk at the start of the year about the Great White Short, as some hedge funds bet against the Canadian banks. That didn’t work out so well
December 28, 2013 Leave a comment
Here’s why Canada’s big banks keep on winning
John Shmuel | December 27, 2013 | Last Updated: Dec 27 2:53 PM ET
Better luck next year to those who shorted Canadian banks.
There are was a lot of talk at the start of the year about the Great White Short, as some hedge funds bet against the Canadian banks on the expectation that a slowing Canadian economy would hit financials hard.But that didn’t play out and anyone who went short lost out on a great rally. The S&P/TSX Capped Financials index is up 21.7% year to date after a year of record profits, numerous dividend hikes and a couple of stock splits.
As we can see from the numbers, anyone who shorted didn’t do so well
“I wouldn’t bet against Canadian banks and, as we can see from the numbers, anyone who shorted didn’t do so well,” said Adrian Mastracci, a portfolio manager at KCM Wealth Management in Vancouver.
This year has been a milestone for the country’s banks, with Royal Bank of Canada becoming the first Canadian bank to hit $100-billion in market capitalization. Investors who held onto bank stocks were rewarded with dividend hikes from the big six banks and returns that easily beat the S&P/TSX composite’s 9.2% rise.
The year-end picture is very different from the start of 2013, when fears of an impending slowdown in the Canadian economy were at their peak. The main thesis held that skyrocketing home prices and record household debt meant Canadians were about to pull the plug on borrowing, leading to a housing crash that would take a big toll on Canada’s banking profits.
All the talk of a housing crash has essentially evaporated since then. Canadian banks have weathered a marginal slowdown in borrowing with improved profits from other parts of their businesses, including wealth management.
Mr. Mastracci said it’s still possible Canadian banks could see a pullback during the next year, but he would see it as an opportunity to stock up on more shares, rather than run away.
“There might be a day when the banks aren’t in favour, but that’s a day I would be buying,” he said. “But bet against Canadian banks? I don’t think that’s a good idea.”
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