The banking sector is “unappealing” for IML Investors with two of its Australian equity funds holding minimal exposure to the sector.
The $157 million IML Concentrated Australian Share fund had zero exposure while the $2.3 billion Australian Share fund was "very underweight" the sector. It held weightings in Commonwealth Bank, Westpac and NAB in its fund but had an overall 8.8% underweight to the financial sector weighting of the ASX 300 benchmark.
Although the banking sector did well after the last recession in 1990, IML said it did not necessarily expect this to be the case this time round.
Portfolio manager Hugh Giddy said: “The reason for our continued caution to the sector is because banks are highly-leveraged enterprises with large asset bases (or loan books) relative to their equity. The banking sector did very well for almost 30 years after the last Australian recession in 1990/1 as credit expanded rapidly.
“In the current environment, with overindebted households, stretched property values and potential market losses from bad debts, the risk/return trade-off in banks remain unappealing.”
Average share price losses for the big four banks since the start of the year to 4 May was 31% with the best-performing bank being Commonwealth Bank which lost 23% and Westpac the worst with losses of 34.9%.
Share price performance of big four banks since the start of year to 4 May 2020