Why Bissett manager is bullish on banks, despite housing risks

Rising interest rates boost profitability, Tim Caulfield says.

Diana Cawfield 9 November, 2017 | 6:00PM

Higher interest rates and higher bank profits go hand in hand, says Tim Caulfield, co-manager of Franklin Bissett Canadian Equity. Five of the big banks, led by  Royal Bank of Canada (RY),  The Toronto-Dominion Bank (TD) and  Canadian Imperial Bank of Commerce (CM), are among the top 10 positions in the portfolio.

"They're a huge portion of the portfolio because we love those businesses," says Caulfield, "and we like the investment prospects from here. We're not making a macro call on where interest rates are going, but in a rising interest-rate environment, your profitability tends to expand if you're a bank." That's because banks can lend money at higher rates, while the cost of paying interest on deposits doesn't necessarily increase right away, or by as much.

Caulfield is vice-president and director of equity research at Franklin Bissett Investment Management in Calgary. He co-manages the Morningstar Silver-rated fund along with colleague Garey Aitken, using a GARP (growth at a reasonable price) discipline.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Canadian Imperial Bank of Commerce124.80 CAD0.54
Royal Bank of Canada118.49 CAD0.40
The Toronto-Dominion Bank82.88 CAD0.31

About Author

Diana Cawfield

Diana Cawfield  Diana Cawfield is an award-winning writer who has been a regular Morningstar contributor since 2000. Her numerous publication credits include the Toronto StarAdvisor's Edge and Chatelaine, as well as the Canadian Securities Institute's online educational services.

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