The returns of Australian fund managers and the Commonwealth Bank of Australia (CBA) could not be more misaligned as underweight positions in the ‘world’s most expensive bank’ prove costly.
CBA's surging share price has put even more pressure on domestic institutions, which appear almost universally underweight the stock, according to Goldman Sachs research.
The investment bank said it could not find a top 25 fund manager with a higher than index weighting in CBA when it reviewed recent newsletters.
The price has more than doubled since late 2023, outpacing the three other Big Banks by over 40% and the other 199 stocks in the ASX 200 benchmark index by more than 70%.
Over this period the median manager in the sample of monitored funds underperformed CBA’s returns by about 4% but outperformed the other 199 stocks by about 2%.
“The correlation between active fund managers’ alpha (outperformance) and the banks has never been more negative, suggesting underweight positions remain large in a historical context,” Goldman Sachs said in a research note.
Australia’s biggest bank now represents half of the ASX bank sector’s market capitalisation, up from about 30% in the last 20-years, and its premium to the other three major banks has risen to 80% from 10%-20% over the same period.
At a global level, CBA was the 11th largest listed bank by market capitalisation and trading at an 180% premium to the average of the top 10, based on 12 month forward price earnings ratios.
Morningstar said most Australian banks had run ahead of fundamentals, especially CBA, and were priced for more than mid-single-digit earnings growth it expected.
Senior Equity Analyst Nathan Zaia the major Australian banks became more overvalued in the June quarter with the weighted average price/fair value estimate rising to 1.50 from 1.27 at the end of March.
“The increase is entirely due to higher share prices, with fair values unchanged,” Zaia wrote in an Industry Pulse report.
Major bank performance was positive across the board in the past 12 months, but the contrast between CBA and ANZ (ASX: ANZ) was stark and the surge in prices could not be explained by economic or industry data.
At the time of writing CBA (ASX: CBA) shares were 51 cents (0.29%) higher at $179.23, giving it a valuation of A$299.95 billion, after peaking at a record $192 in June.
