Over the long term, investment returns are made up of the growth in net asset value of a share, dividends received and the re-rating or de-rating of a share.
Banks outperform over the long term due to their high leverage. This allows them to generate high return on equity (ROE) on very low return on assets (ROA). It is this leveraged ROE that generates the high and consistent NAV growth and allows the good dividend payouts. However, this same leverage is the cause of fear in times of distress. Globally, governments have taken steps to redress bloated budget deficits and high debt levels. While this means a painful adjustment period, the time of uncertainty is over. Banks are trading at record low valuations. Barclays traded at similar valuati...
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