Fisher Investments on Financials
Characteristics of financial industry:
1. A relatively volatile sectors that is highly correlated with broader markets
- high beta that is second only to IT industry
2. Sensitive to interest rates
- financial firms are heavily exposed to financial assets and they are typically leveraged
- highly negatively correlated with 10 year yield except certain periods like financial crisis
- tend to underperform in rising interest rates
3. Neither cyclical nor defensive
- relative performance in both bull and bear market tend to be similar
- best not to allow market cycle to dictate financial stocks unless it’s a financial crisis
4. Heavily regulated
- decisions made by regulators can greatly impact the sector
5. Highly leveraged and reliant on other people’s money
- have a lot of liabilities relative to equity (gearing)… Asset to equity ...
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