Since the beginning of 2012 shares in our biggest investment bank, Macquarie Group Ltd (ASX: MQG) have climbed a whopping 137%. The bank has also significantly grown its dividend.
Obviously, investment banks and other stocks which are leveraged to increasing investor confidence, such as fund managers and financials, perform well when worldwide stock markets rally.
Increased confidence plays a big part in growing funds under management, lending and demand for specialist services such as M&A, research and other banking and financial advice. This was evident from Macquarie's 49% net profit growth in FY14 where a big driver of earnings was the 30% growth in assets under management.
Looking forward, global markets continue to rally and, despite a recent rough patch, investor confidence is too. With over 68% of income derived outside Australia and New Zealand, Macquarie stands out, alongside companies such as Computershare Limited (ASX: CPU), as one of the biggest beneficiaries of rising global equity markets in the near future.
Further down the track, Macquarie's Asian presence and push into the mortgage market – through brokers such as Yellow Brick Road Holdings Ltd (ASX: YBR) and Homeloans Limited (ASX: HOM), gives it a number of promising growth prospects.
Buy, Hold or Sell?
Macquarie appears to be a good long-term buy and hold investment today. However, its earnings, as noted above, are cyclical and given that we're currently in the middle of a bull market, its vital investors consider the downside risks from its current price.
