Since the royal commission, Commonwealth Bank of Australia (ASX: CBA) shares have been the standout performer among banks, rebounding to find its share price 4.4% higher than it was six months ago. But looking at the longer term, it’s Macquarie Group Ltd (ASX: MQG) that stands out to me.
You can find Rask Media coverage of the CBA HY Report and the Macquarie quarterly report at the links below.
Considering myself a long-term investor, it’s prudent that I consider the returns of different companies over a timeframe of several years.
As mentioned, over the last six months CBA has been the best performer. But looking at one-year, five-year, or even ten-year returns, Macquarie is leagues ahead of the rest. In fact, over the last ten years, Macquarie has generated a return of over 650% for its shareholders, not-so-closely followed by Suncorp Group Ltd (ASX: SUN) with a return of 195%.
Even over a one-year period, while most banks have returned nothing but dividends, Macquarie’s share price has grown by over 20%.
What Makes Macquarie Different?
The biggest and most obvious difference is that Macquarie is primarily an investment bank, meaning their sources of revenue are different.
Macquarie is also highly diversified, with no sector comprising more than 30% of the business. The majority of profit comes from Asset Management, Commodities and Global Markets, together making up 56% of profit.
The Banking and Financial Services sector, on the other hand, only makes up 11% of the profit. What this means is that Macquarie has not been left heavily exposed to the downturn in the property market, with a total Australian loan portfolio of $44.5 billion. This is about one-tenth of CBA’s home loan portfolio.
On top of this, Macquarie’s reliance on financial services has been less than that of other banks. Throughout the royal commission, Macquarie was able to dodge the worst of it and come out relatively unscathed.
A Word of Warning
Macquarie has proved to be the bank of choice for share price outperformance and seems less exposed to current risks than other banks. However, in a downturn, investment banks don’t tend to fare well. During the GFC, Macquarie went from a high of around $86 to a low of close to $25. To contrast, CBA fell from around $61 to $26. If you’re worried a financial downturn could be on the horizon, an investment bank might not be your best choice.
Disclaimer: At the time of writing, Max does not own shares in any of the companies mentioned.