Banking on banks

After taking advantage of RBS's recent slump in share price I am now officially overweight on banks.

A good place to be. Add a typical 4% yield to 10% annual earnings growth (and matching share price rise) and you get an average total return of 14% for very little risk.

The downside of my strategy is that bank stocks tend to move together so you can end up having some very bad days. Yesterday was a good example with HBOS down 3.5%, RBS down 2.5% and Lloyds TSB down 1%. Ouch!

HBOS' plunge was due to a trading update that stated that their share of the mortgage market had dropped from over 15% to under 10%. This was due to a management strategy to retain mortgage customer rather than gain new ones. This strategy did not work very well! HBOS think they can recover their share to over 15% by the end of the year. If they succeed then the current price is a good buying opportunity as the 2007 PE is under 10.

I guess the other problem with being overweight banks is that when opportunities to top up appear you can't as you have already done all your topping up.

Not to worry. My bank shares add yield and stability to my portfolios and I am not letting go of them easily.