Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Cancel Anytime
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99per week for the first 24weeks
Just $1.99per week for the first 24weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

You're richer than you think - in financial stocks, anyway.

Financials permeate the global stock indexes to a surprising extent, which means they're probably a major factor in your portfolio, too. Thinking of adding some financial stocks or sector funds to your mix? You probably don't need to and, in fact, you could end up overdosing.

Let's start at home, where about 30 per cent of the S&P/TSX composite index was accounted for by bank, insurance company and investment firm stocks as of late summer. That was about 3.5 percentage points ahead of energy, which was the top-ranked sector during the 2007-09 period in which banks around the world were being thrashed by investors because of their role in creating the global financial crisis.

Story continues below advertisement

Banks have since been rehabilitated to a large extent, and not just in Canada. Financials were the top-ranked sector in the global benchmark index, the MSCI World Index, accounting for about 21.5 per cent. Take North America out of the equation by focusing on the MSCI Europe Australasia Far East (EAFE) Index and you get a dominant 26.5-per-cent weighting. Even the MSCI Emerging Market Index had financials ranked first in the late summer, at 25.4 per cent. Only in the United States, where the banking sector was slammed especially hard and hasn't fully recovered, were financials less dominant. The weighting in the S&P 500 was 16 per cent, just behind information technology.

Financials are even more dominant in a few market subsectors. In the S&P/TSX Dividend Aristocrats Index, the sector had a weighting of just over one-third. In the S&P/TSX Preferred Share Index, financials led with a weighting of almost 60 per cent.

Regardless of whether you own index-tracking exchange-traded funds or conventional mutual funds, you probably own a lot of financials. The top three holdings of the country's largest mutual fund, Investors Dividend, were Royal Bank of Canada, Bank of Nova Scotia and Bank of Montreal as of the most recent portfolio update with Globeinvestor.com. In total, financials accounted for 52 per cent of the holdings. The largest Canadian equity fund, RBC Canadian Equity, had a 31-per-cent weighting in financials. RBC and Toronto-Dominion Bank were the top holdings here.

If you own either of these funds, or a popular exchange-traded fund like the iShares S&P/TSX 60 Index Fund, the last thing you should do is add some bank stocks or a financial sector fund to your portfolio. Examples of these financial-focused funds include the iShares S&P/TSX Capped Financials Index Fund (XFN-TSX), or the CIBC Financial Companies Fund. Beware, also, of pairing up funds in the Canadian and global categories that are heavy on financials. With a 37-per-cent weighting in financials, the AGF Global Value Fund would not be an ideal match with RBC Canadian Equity.

You can impose limits on your financial exposure by not owning multiple funds with heavy concentrations of financials, and by favouring certain funds over others within the same category.

If you're in the market for a dividend-focused ETF, you might go with the Claymore S&P/TSX Canadian Dividend ETF (CDZ) over the iShares Dow Jones Canada Select Dividend Index Fund (XDV). The Claymore product's underlying index had a 36.4-per-cent weighting in financials, the iShares fund a weighting of about 60 per cent. Underweighting financials is a gutsy thing for a mutual fund manager to do because it creates the risk of lagging the benchmark. One large fund that accepts this challenge is Mackenzie Ivy Canadian, with just under 12 per cent of its holdings in financials.

Of course, you certainly want some exposure to financials. Canadian investors have happily been scooping up dividends from bank stocks for decades, and the financial crisis passed comparatively lightly here. In case we're not that lucky the next time financials get slammed, keep a limit on how much you have in these stocks.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies