Wealth Outlook 2024 - Slow then grow

65 Wealth Outlook 2024 | Opportunistic Our top 10 high conviction potential opportunities 7. Private capital asset management firms Equities of US banks have returned -6% in 2023.⁷ ⁷ Bloomberg as of November 28, 2023. Their return relative to the S&P 500 matches a 35- year low ( FIGURE 11 ). In core portfolios, we have effectively overweighted US bank preferred shares with an average yield near 7.6%⁸ ⁸ Bloomberg as of November 28, 2023. on capital securities, but not their common shares. There are many explanations for the deep under- performance of bank common shares (see Taking advantage of the markets’ big reset on page 5 ) . However, the most compelling explanation is the desire by regulators to force large, regulated banks to bolster balance sheets by issuing more long-term debt at a higher cost than deposits ( FIGURE 12 ) and raising the capital requirements for certain banking activities (see Investing with and in unregulated financial companies on page 71 ) . Though the economics of banking should have improved with higher yields, regulatory uncertainty is effectively preventing the big systemic banks from fully participating. FIGURE 11 The underperformance of US bank shares matches a 35-year low 0 1990 1995 2000 2005 2010 2015 2020 0.05 0.10 Relative performance 0.15 S&P 500 Total Return: Banks vs S&P 500 Total Return Recession Source: Haver Analytics as of November 22, 2023. Ratio of S&P 500 Banks Index to S&P 500 Index. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future results. Real results may vary.