Skip to main content

Zelfit/Getty Images/iStockphoto

Here's one thing you can say about Canada's Big Banks: Seen one, seen 'em all.

Despite the close examination of the sector by investors, analysts, strategists and fund managers – all looking for the competitive advantage of one bank over another – it turns out that there isn't a whole lot separating them in terms of share price performance.

Over the past five years, to the end of March, Royal Bank of Canada has risen 27.5 per cent. That's a fine return, given the tumultuous nature of the stock market over this period, and it walloped the benchmark S&P/TSX composite index by 36 percentage points.

Story continues below advertisement

But Royal's five-year return looks far less noteworthy when compared with its peers: Bank of Montreal has risen a remarkably similar 27.6 per cent over the period – all of 0.1 percentage point difference – while Toronto-Dominion Bank has risen 27.9 per cent and Bank of Nova Scotia has risen 23.6 per cent.

The difference between the worst-performer and the best-performer is little more than four percentage points (when you ignore Canadian Imperial Bank of Commerce, the outlier in the group that significantly underperformed during this period), despite 20 quarterly earnings reports each, about 1,250 trading days and coverage by nearly two dozen analysts.

The natural inclination for an investor is to surrender any preference: Pick one bank stock at random or simply buy an index that tracks them all. Then, ignore all earnings reports and analyst commentary, and collect your hefty quarterly dividends.

To be sure, surrendering the freedom to select your stocks sounds plain lazy and crazy to many stock-picking enthusiasts.

They can rightly point out that Canadian banks are quite different beneath their conservative exteriors. Some have a bigger international exposure, while others have a bigger share of domestic residential mortgages – strategies that will surely lead to performance differences with time.

Indeed, the five-year period of performance comparisons is just one snapshot. Canadian banks have demonstrated far different returns over other periods.

So far in 2013, Bank of Montreal is beating TD by six percentage points. And over the past decade, Royal has beaten BMO by more than 50 percentage points.

Story continues below advertisement

But these differences merely add to the futility to trying to pick winners in this sector: With different stocks winning over different time periods, investors are left with the same problem: Which bank stock will be tomorrow's winner?

In other sectors of the market, astute investors can draw intelligent conclusions based on management skills, product development and other competitive advantages.

With Canadian banks, the advantages aren't so clear.

Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Comments

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:

  • All comments will be reviewed by one or more moderators before being posted to the site. This should only take a few moments.
  • 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

Comments that violate our community guidelines will be removed. Commenters who repeatedly violate community guidelines may be suspended, causing them to temporarily lose their ability to engage with comments.

Read our community guidelines here

Discussion loading ...

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.
Cannabis pro newsletter