Up until at least the Royal Commission, every investor loved the ‘Big Four’ banks. A seemingly endless stream of rising profits and dividends made the Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd. (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) portfolio staples. Buying your first bank shares was almost an ASX rite of passage for any ‘serious’ investor, as the Big Fours’ ‘growth plus income’ reputation continued to deliver.
How the times have changed. Banks are now the pariah of the ASX, with many retail investors bailing out months ago as the scandalous waves from the Royal Commission kept on crashing. For all the ‘Big Four’ banks, the share prices haven’t been anywhere near their all-time highs for many years (in the case of NAB, over a decade). What was once a ‘sure thing’ is now a riskier play, particularly as our housing market struggles and credit growth dries up. So maybe it’s time to look outside the Big Four.
Macquarie Group Ltd (ASX: MQG) is Australia’s fifth largest bank by market capitalisation and there’s a good reason why it is never lumped in with the ‘Big Four’. Although Macquarie does offer retail banking services, these make up a sliver of Macquarie’s business (about 12%), with the bank primarily involved in investment and commercial banking and asset management. Almost a quarter of Macquarie’s revenue stems from asset management, where it is among the top 50 global asset managers with over $542 billion of funds under management. A further 22% of revenue is from infrastructure investments in its MacCap capital division.
So as you can see, Macquarie’s earning are highly diversified compared with the traditional banks. This makes it a more resilient company in all forms of economic weather, although Macquarie’s asset management arm is vulnerable to stock market tumbles.
We have seen this reflected in Macquarie’s share price over the last week or two as the trade war tensions continue. Shares in Macquarie were trading north of $135 at the start of May but opened today at less than $118. This means that Macquarie shares are yielding 4.9% on current prices, which, in my opinion, makes the company a great dividend-income play as well (although Macquarie shares are only partially-franked).
I think if Macquarie shares fall any further, it starts to look pretty attractive from a value perspective (particularly if you can get a yield with a 5 in front). I think Macquarie will outperform the other ASX ‘Big Four’ banks over the next decade, so if you are interested in buying a bank, it wouldn’t hurt to check out Macquarie (particularly if the trade war continues).
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Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. The Motley Fool Australia has recommended Macquarie Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.