MARKETS SPECTATOR: Banks? No thanks

Betting against bank stocks? You’re not alone.

Nathan Parkin, the portfolio manager of Perpetual’s $500 million ethical fund, reckons "the yield trade is stale".

Parkin has been underweight banks and Telstra for three months. He admits such a strategy has "hurt" the fund’s performance. Still, in the three months to March 31 Parkin’s fund has gained 14 per cent, according to Mercer. In the 12 months to March the fund is up 38 per cent and over three and five years it has gained 15 per cent and 13 per cent respectively per annum, making it the best performing large fund in Australia in each of those time periods, according to Mercer.

“People are chasing yield like the yield is guaranteed,” says Parkin. “If people lose faith in it, yields will blow out.”

Banking stocks are not immune, he says, to the broad machinations of the economy. If the bets against mining stocks prove prescient because of a slide in demand for commodities, mainly due to Chinese growth being less than 10 per cent the World Bank estimates it has been since 1978, the repercussions will be felt across all sectors of the economy including the banks.

Instead of putting so much of his fund’s money in banks, Parkin has instead invested in accounting software maker Reckon and Prime Minister Julia Gillard’s former employers, law firm Slater & Gordon.