Record low interest rates have forced investors, particularly retirees with self-managed super funds (SMSF) who are reliant on a steady stream of income to fund their living expenses, to take their money out of deposit accounts and invest in the stock market to receive an adequate return on their savings.
The major stocks to benefit from this flow of funds – which has been dubbed the ‘chase for yield’ – have been Telstra Corporation Ltd (ASX: TLS) and the big four banks. As many investors are now aware however these blue-chip, high yielding stocks are looking very fully valued, with some investors suggesting the stocks are in fact overvalued. Overvaluation poses an obvious risk to investors and requires caution.
Apart from the high dividend yield the other major appeal of owning bank stocks is the tailwind of a growing industry which as bank shareholders have witnessed is providing them with record high profits. There are two other stocks however which also provide exposure to the tailwind of financial services and arguably offer more defensive characteristics.
Woolworths Limited (ASX: WOW) has announced a partnership with Visa which will expand on its recently enhanced move into the credit card space via its partnership with Macquarie Group Ltd (ASX: MQG). Given the massive customer base of Woolworths and likewise its rival Coles, owned by Wesfarmers Ltd (ASX: WES), these two blue-chip retailers could become a serious financial services force to be reckoned with in years to come.
A better bet than the banks
Just imagine if every Coles and Woolworths supermarket offered banking and financial services – it would be a massive customer-facing footprint to rival the currently established bank branches.