Commonwealth Bank of Australia (ASX: CBA) shares are having a pretty lacklustre year in 2023.
The crown jewel of the big four ASX 200 bank shares closed 2022 at $102.60.
In late afternoon trading on Friday, the CBA share price is $101.27.
Kind of a sideways shuffle. Not very exciting.
CBA share price flat as fundies eye insurance stocks
It seems fund managers are not currently inspired to hold bank shares like CBA, either.
Even the world's greatest investor, Warren Buffett, is 'very cautious' on banking stocks this year.
According to the Australian Financial Review (AFR), fund managers are now quitting ASX bank shares in favour of ASX insurance shares.
Let's look into why.
Fundies ditch ASX 200 bank shares for insurance shares
On the face of it, it may seem strange that ASX 200 bank shares are underperforming the S&P/ASX 200 Index (ASX: XJO) in 2023 despite interest rates continuing to rise.
The Reserve Bank has raised interest rates 12 times since it began raising rates in May 2022. This cash rate has gone from 0.1% to 4.1% today.
But as we've previously reported, rising rates present pros and cons for bank shares like CBA.
The banks say they've got a number of challenges today. They include strong competition, downward pressure on net interest margins (NIMs), the potential for rising bad debts, and economic uncertainty.
This is why some fundies see insurance shares as the more attractive ASX financial shares right now.
They have pricing power, and people are reluctant to cease insurance despite the rising costs of living.
The AFR reports that the big general insurers have raised premiums by 10% to 20%. There's been no change to competition levels and no big insurance events in recent times.
Plus, they're raking in extra investment income (insurers typically invest the cash premiums we pay into bonds, and yields are up).
The fundies' switch from bank shares to insurance shares has helped propel the big insurers in 2023.
In the year to date:
- The Insurance Australia Group Ltd (ASX: IAG) share price has gone up 23%
- The QBE Insurance Group Ltd (ASX: QBE) share price has lifted 14%
- The Suncorp Group Ltd (ASX: SUN) share price has increased 13%.
Meantime, the CBA share price is down 1.3%. The National Australia Bank Ltd (ASX: NAB) share price is down 8.5%. And the Westpac Banking Corp (ASX: WBC) share price is down 5.4%.
The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price is the outlier, up 6.1%.
Should you switch from CBA shares to insurance shares, too?
It's worth remembering that fund managers spend their days on an endless mouse wheel trying to outdo the market with their investment decisions.
This can necessitate changing their holdings in accordance with short-term trends and predictions far more frequently than is realistic for an ordinary investor with a day job and a life to live.
It's worth remembering that ASX 200 bank shares have always been superior dividend payers.
So, during times of slow or no share price growth, dividends can be a good enough reason to continue holding CBA shares or any other banking stock.
In fact, in today's era of higher interest rates, Morgan Stanley says dividend stocks are more likely to form the bulk of investors' returns for a while yet.
And the broker is not alone in its view.
CBA shares are expected to pay $4.35 per share in dividends in FY24, which is a yield of 4.3%.
Want to know how much the other ASX 200 bank shares are expected to pay in dividends in FY24?
Check out our article here.
Spoiler alert: Westpac shares are expected to pay the highest yield among the big four bank shares at 7% in FY24.
By comparison, IAG shares are trading on a trailing dividend yield of 1.9%, Suncorp shares 3.7%, and QBE shares 2.5%.
