April 2019 – What to Do with Financial Stocks

The financial sector remains the largest component of the TSX Composite Index at 31.70%. US Financials represent the third largest equity sector of the S&P 500 at 12.7%. For my North American sector weights, I continue to advise 55% in the US and 45% in Canada. This works out to be 21.25% of the total equity North American component, the single largest group on a weighted basis.

Historically the Canadian banks have been more consistent performers over time with considerably less risk than their US counterparts. During the last recession of 2008 no Canadian bank cut its dividend, but in the US it was a completely different situation. In order to avoid a total financial meltdown, the stronger US banks were forced by the US Government to acquire their weaker competitors. In that venue Bank of America bought Merrill Lynch to avoid a bankruptcy of the latter company. JP Morgan, the best capitalized US bank was also required to acquire financial institutions that were on the verge of collapse. The term “ Too Big to Fail “ was coined at that time.

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