And the winner is... MVB 

Is it just me or do Australian Banks seem to do well every profit reporting season? I can’t remember reading negative bank profit headlines. The last round of numbers released in late 2023 saw CBA, NAB, Westpac and ANZ (“The Big Four”), generated $32.5B in profit – that’s 12.4% higher than the previous year. Talk about a license to print money. Throw in Macquarie Bank’s $5.1B and it was a pretty good year for our banks. I realise the same can’t be said for us mortgage holders. 

So how do we get some back? Invest in an ETF that invests in Australian banks, that’s how. With this is mind VanEck’s quiet and unassuming MVB Australian Banks ETF is in the spotlight. 

What VanEck says

Australian banks are among the most highly regarded in the world. The ‘Four Pillars’ (Commonwealth Bank, ANZ, Westpac and NAB) are ranked in the top 50 ‘most valuable banking brands’ in the world by The Brand/Finance Banking 500 and they are ranked in the top 50 ‘safest banks’ by Global Finance. The Australian banking sector represents almost 1/4 of the Australian equity market by market capitalisation*

MVB was designed to be:

• an easy and cost-effective way to achieve a diversified portfolio of Australian banks

Key Benefits 

• Invest in all the banks and remove single bank risk with one trade on ASX”

What the promotor says 

“MVB offers a targeted investment position to one of the pillars of Australia's economy which has typically paid high franked income, relative to other sectors. You can gain exposure to the largest banks in the country, including the 'big four'. Over the past seven calendar years each of the big four banks has been the best performer and the worst performer at least once. It’s hard to pick a winner. MVB removes single bank risk.”

VanEck, Head of Investment, Russel Chesler

What The ETF Guy says

I have always liked MVB and have recommended it to many of my clients. It’s not the most exciting or the most innovative ETF out there, but for a lot of investors it hits the spot… a few spots for that matter. 

• First of all, it’s pretty safe. You don’t expect to wake up one day and hear that the CBA has gone broke. 
• Secondly, and closely related, is its “blue chipness”, Sit and hold investors like the security of blue chip shares and what is more blue chip in the Australian market than the major banks, all of them safely ensconced in the top 20 Australian stocks. 
• Thirdly, the investment, i.e. Banking and Finance, is easy to understand. Everybody has had dealings with banks, everybody watches their commercials, and everybody hears their profit reports. You can’t miss them really. 
• Fourthly, the banks pay a healthy dividend. MVB passes on this dividend stream and all the attached franking credits (great in superannuation) to its investors three times a year. 

Risks 

Of course it's not all plain sailing, there are risks involved with investing.

MVB carries general market risk, meaning its price is going to fluctuate when the overall share market fluctuates. The big four banks are almost a quarter of the ASX. When it was really hitting the fan, like during Covid in early 2020, or further back during the GFC, all shares took a tumble. The banks were no exception. But when that is happening, what would you rather be invested in? Some speculative stock that your cousin told you about, or half a dozen banks that are so important to Australia’s economy?

Another real issue is concentration risk. MVB is primarily invested in Australian Banks. This is just one part of the overall market, so if something happens that affects just the banking industry MVB is going to take a hit. If you are going to invest in MVB you have to decide whether you want to wear this risk. 

How would The ETF Guy use MVB?

To me, MVB is the type of ETF that you buy and forget about. You know it’s going to fluctuate in value with the market, but you also know it is going to reward you with a strong and sustainable income stream. 

Over the last 3 years it has kicked out approximately 5.5% per year in income alone. That’s not a bad income coming from an investment that you don’t think is ever going to go anywhere. Buy it on a dip if you can, and if you can reinvest the dividends, better again. The added franking credits make it super attractive in superannuation. 

Next steps

Lots of information is readily available on the net, but if you would like to discuss investing in MVB in greater detail contact me at [email protected]. 

Disclaimer: The purpose of this article is to provide general information only. It should not be relied upon as personal financial advice. The ETF Guy strongly recommends investors consult a financial adviser prior to making any investment decision. While all care was taken at the time of writing I make no representations as to the accuracy, completeness, suitability, or validity, of any information contained within.