With stretched valuations across capitalization-weighted indexes, a flexible approach to sector allocation is more important than ever. Here are six reasons our veteran financials team believes U.S. bank stocks may be worth a closer look.
Interest rates are generally higher today than they were in the years following the financial crisis. This, combined with a positive slope of the yield curve, has led to better profitability in the form of improving net interest margins.
Rising rates are improving net interest margins
Loan growth should continue to grow
Bank lending lagged deposits by a wide margin after the financial crisis, as banks tightened their standards and consumers repaired their balance sheets. That gap has narrowed of late and should continue to narrow with a strengthening economy and rising consumer confidence.
Credit has remained benign for several years. Non-performing assets have declined significantly since the financial crisis, and bank loan loss provisioning and net charge-offs remain at pre-crisis levels.
Bank spending on bad loans is relatively low
The industry is well positioned to continue consolidating
The current environment is conducive to an increase in mergers and acquisitions within the U.S. banking industry.
The regulatory environment has eased substantially under the new administration, including the appointment of several banking-friendly heads of key regulatory agencies. We believe this is a trend that bodes well for U.S. banks in the coming years.
Key regulatory agencies have new, banking-friendly heads
Bank stock valuations remain below long-term averages
U.S. banks trade at a roughly 24% discount to their long-term median price-to-book ratio. While that discount is smaller than in the years following the financial crisis, we believe it continues to represent an attractive entry point for investors.
John Hancock Regional Bank Fund Class I
Advisors: Ask a John Hancock Investments Business Consultant for a detailed review of how John Hancock Regional Bank Fund can work in your clients’ portfolios.
All funds may experience periods of negative performance.
For each managed product, including mutual funds, variable annuity and variable life subaccounts, exhange-traded funds, closed-end funds, and separate accounts, with at least a 3-year history, Morningstar calculates a Morningstar Rating™ based on a Morningstar Risk-Adjusted Return that accounts for variation in a fund’s monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. Exchange-traded funds and open-end mutual funds are considered a single population for comparative purposes. The top 10.0% of funds in each category, the next 22.5%, 35.0%, 22.5%, and bottom 10.0% receive 5, 4, 3, 2, or 1 star(s), respectively. The overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its 3-, 5, and 10-year (if applicable) Morningstar Rating metrics. The rating formula most heavily weights the 3-year rating, using the following calculation: 100% 3-year rating for 36 to 59 months of total returns, 60% 5-year rating/40% 3-year rating for 60 to 119 months of total returns, and 50% 10-year rating/30% 5-year rating/20% 3-year rating for 120 or more months of total returns. Star ratings do not reflect the effect of any applicable sales lead. The fund’s Class I share overall rating was 5 stars out of 100 funds for 3 years, 5 stars out of 94 funds for 5 years, and 4 stars out of 72 funds for 10 years. Please note that Class I shares may not be available to all investors and that performance of other share classes may vary. Different share classes may have different Morningstar ratings. Past performance does not guarantee future results.
Morningstar Direct. Calculations are based on Class I shares for the 3-year period ended 12/31/17. Alpha measures the difference between an actively managed fund’s return and that of its benchmark index. An alpha of 3, for example, indicates the fund’s performance was 3% better than that of its benchmark (or expected return) over a specified period of time. Beta measures the sensitivity of the fund to its benchmark. The beta of the market (as represented by the stated benchmark) is 1.00. Accordingly, a fund with a 1.10 beta is expected to have 10% more volatility than the market. The fund’s benchmark is the S&P Composite 1500 Banks Index, which tracks the performance of publicly traded large- and mid-cap banking companies in the United States. It is not possible to invest directly in an index.
A portfolio concentrated in one sector or that holds a limited number of securities may fluctuate more than a diversified portfolio. The stock prices of midsize and small companies can change more frequently and dramatically than those of large companies. Foreign investing, especially in emerging markets, has additional risks, such as currency and market volatility and political and social instability. Hedging and other strategic transactions may increase volatility and result in losses if not successful. Please see the fund’s prospectus for additional risks.