While the banking industry is thought by many to be a fairly slow growth sector of the overall economy, its historical outperformance of broader market indices is a little known fact. The banking industry generates fairly stable earnings at an 8% - 11% growth rate each year and has done so for the past 30 years. Bank stocks can also yield dividend returns of 2% - 4%. Thus, average annual total returns have historically ranged from 10% - 15% compared to broader market returns averaging 10% over the same 30-year period.

Historically, the banking and financial services sector has represented between 12% and 22% of broader market indices. This relationship is largely a function of the relative earnings contribution to the index. During times of lethargic corporate earnings, banks and financials have tended to play a greater role due to their fairly stable revenue and earnings growth trends. Initial investor reaction would be to underweight all sectors.

This long-term historical outperformance through up markets, down markets and flat markets gives the thoughtful investor good reason to question the so-called conventional wisdom that bank stocks are supposedly only a cyclical play.

Further, as a result of ongoing industry consolidation, each year approximately 200-300 bank institutions are involved in mergers or acquisitions. Publicly traded bank stocks on either side of such transactions can offer further opportunity to the savvy investor.

These are among the reasons that RASARA believes that bank stocks should be a part of any broad pension fund strategy.