Why the big four bank shares are horrible investments

Compared to the rest of the market, the big four bank shares don’t perform well.

A common theme among the experts I talk to on my share investment program The Call is their frustration in talking with clients who seem to marry their big four bank shares… they just won’t even talk about selling them. And even this week’s global sell off in bank shares would not have changed their minds.

I can understand this for a whole number of reasons. Their bank shares:

were bought pre 1984 and are CGT free
were part of an inheritance
are regarded as a safe investment
pay a good dividend

I get all those reasons and they are very valid.

BUT.

As an investment they have underperformed the rest of the sharemarket over the long term.

The big four have underperformed over the long term

Mark Gardner from Maqro measured the performance of the big four banks against an ASX200 ETF over the last 10 years. The result?

The basket of big four bank shares produced an average annual capital loss of -1.35 per cent (that’s negative), while dividend yield averaged an attractive 7.64 per cent a year. So total annual return (capital growth plus dividend) averaged 6.29 per cent over 10 years.

But the ASX200 ETF over the same period averaged annual capital growth of 3.97 per cent plus dividend of 6.68 per cent for a total annual return of 10.65 per cent over 10 years.

Worth thinking about.

The best blue-chip stocks over the last 10 years

The top four over the past decade

In dollar terms the best returns from the top 30 biggest companies were CSL ($25,525), followed by Macquarie Group ($17,654), Cochlear ($15,043) and Rio Tinto ($10,445).

Among the broader ASX 200 companies, around 90 stocks exceeded sector average growth over the past decade on share price appreciation alone. And looking at dollar returns, one notable result was property group REA, which generated net returns of just over $12,000 over the past decade on a holding of 100 shares.

What if the focus is on growth, not dollar returns?

Gaming company Aristocrat Leisure (ALL) is the top performer under this measure with its share price and dividend returns soaring over 972 per cent over the past decade.

Gold explorer, Northern Star (NST), was next highest with returns up 871 per cent, ahead of Mineral Resources (MIN), ResMed (RMD) and Fortescue Metals Group (FMG).

Of the companies providing the biggest dollar returns, Macquarie Group was 6th in the rankings of total returns over the decade, with CSL 7th, Cochlear 12th and Rio Tinto 15th.

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