Financials account for the largest sector of the MSCI World Index at 18.9% as of 30 June 2016.
These stocks are also the largest proportion of MSCI Europe at 19.3%, and the second-largest sector in the S&P 500 at 16.2%, and 18.6% of the FTSE 100.
The question then remains: how is increasing exposure to financials a contrarian bet when the odds are you already have a good exposure to the sector already?
The collapse of Lehman Brothers eight years ago kicked off the global financial crisis and the sector has remained under a lot of pressure ever since.
It is still trying to overcome the surrounding issues and it is probably fair to say that it will be many years before things get resolved.
Students of finance will be poring over the actions of central banks and governments that followed the bank’s collapse for many years to come.
The financial crisis brought about: quantitative easing; the rise of populist politics; the Greek economic implosion; mass unemployment and currency volatility in Europe; the slowdown in the Chinese economy; the collapse of oil and commodity prices; and the UK’s referendum on it membership of the European Union.
Since Lehman’s, global financial stocks have delivered positive returns +75%, which is much better than if you kept money on deposit but a long way behind the broader world index.
Therefore, if financials account for about one-fifth of the broader index that has more than doubled since the start of the problems, and financials have trailed behind the broader index significantly since the global financial crisis, what was the weight, what has been the effect and why should they be considered an interesting investment opportunity looking ahead?