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Questions of the Week – CBA and capital notes

Question: Have banks like CBA had their day or is this a momentary fluctuation caused by investigations into their practices e.g insurance for credit cards? Do you think it’s best to sell CBA now and possibly buy at a lower price later or have they seen their day?

Answer (By Paul Rickard): I am probably out of step with the market – but I don’t think so. Please see my Banks – buy or sell [1] article in Monday’s Switzer.

Rather, I take the view that “common sense” will prevail in due course and that markets will calm down and resume their upward trend. Given the impact that the Royal Commission has had on banks over its first couple of weeks, and the relative weighting that banks have in many investors’ portfolio, the question about whether to buy and increase weighting, or sell and decrease weighting, remains pertinent.

I take the view that this is the time to be moderately overweight banks.

Question: With the proposed changes (should the Labor Party win the election) how would capital notes rate? Also, will investments sitting in the accumulation phase also be denied the right to the franking credits.

Answer (By Paul Rickard): Yes, to hybrids and capital notes.

Yes, to some funds in accumulation mode.

Here is a link to my article [2] on the subject.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.