You're in good company if you're a dividend investor with a portfolio dominated by bank stocks.
Managers of a lot of the top-performing dividend mutual funds do the exact same thing. In quite a few cases, banks dominate the top holdings in these funds and financial stocks as a sector account for more than half the portfolio.
These observations are based on some analysis done using Globeinvestor's mutual fund database. We start with nine of the best performers over the five years to March 31. For each, portfolio details were examined using Globeinvestor's fund profiles.
For some context, let's look at how banks and financials are weighted in the S&P/TSX composite index. The financial sector is by far the largest in the index at almost 34 per cent (energy is next at 21.6 per cent). Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada and Toronto-Dominion Bank together account for 23 per cent of the index. The biggest non-bank in the financials index is Manulife Financial, with a 2.1 per cent weighting.
Among the best-performing dividend mutual fund of the past five years, the average portfolio weighting for financials as a sector was 40 per cent. This is based on weightings of 54 per cent at the high end and 20 per cent at the low end. Note, these financial weightings include insurance companies and investment firms as well as banks. But when you look at financial stocks in portfolio Top 10 lists, banks rule.
One of the funds had banks slotted into each of its Top Five holdings, two of the funds had banks in four of their Top Five spots and three had banks had a trio of banks in the Top Five. The others had two, one and zero banks in the Top Five.
How much space are these fund managers willing to give individual bank stocks alone? Typically, bank stocks in a portfolio's Top 10 were weighted at 7 to 9 per cent each. The banks that most often appeared atop the Top lists were RBC, Scotiabank and TD.