The Barclays (LSE: BARC) share price has stormed up 25% so far in 2021, way above the FTSE 100 average. But Barclays has still lagged Lloyds Banking Group (LSE: LLOY) mind, up 35% year-to-date.
I’ve been bullish about the banking sector for some time, but what does this tell me? Should I add some Barclays shares to my portfolio, or top up on my Lloyds holding? Well, such a short-term price performance difference doesn’t say a lot on its own. But looking back a bit further, I’m seeing an interesting picture.
Over the past 12 months, they’re both up 40% (from early in the crash). But the Barclays share price has gained 24% over two years, though only 10% over five years (with the longer timespan including the early aftermath of the Brexit vote). The Lloyd share price meanwhile, has lost 14% over two years and is down 26% over the half-decade.
Barclays has clearly been the best investment over a five-year timescale. But why, and what does that say now? I think it’s telling me to examine the two banks’ responses to the financial crisis and the Brexit result. Lloyds has withdrawn from the risky world of international investment banking. That’s where the foundations of the world banking systems started to crack in the first decade of this century. And Lloyds has gone further, withdrawing entirely into the UK domestic banking business.
A bolder strategy
But that’s not what Barclays has done. It’s acted more boldly every step of the way. And, judging by the Barclays share price, investors see more potential in that approach. From right back in the depths of the banking crash, Barclays found its own ways to recapitalise and get its balance sheet back into some semblance of health. There’s been some investigative fallout in the way that happened, but it hasn’t harmed shareholders.
Barclays also responded differently to the banking crunch. Rather than shunning the investment banking business, it climbed right back on the horse. I’d say there’s bigger risk there, but potentially greater opportunity.
And it’s surely safer now that worldwide banking regulations have been tightened and balance sheets can no longer become so overstretched, isn’t it? Well, I wouldn’t put it past the banking industry to find new ways to create catastrophe. But there are at least some safeguards now.
A more volatile Barclays share price?
So, two different approaches, but which do I think is best? Barclays is being bolder, sticking with the potentially more profitable parts of the banking business. Lloyds, meanwhile, has gone all out for safety. I can certainly see merits in both strategies. Over the next five years, I could see the Barclays share price being more volatile. And I can picture the Lloyds share price being a bit more plodding, attracting dividend investors rather than those who seek growth and sector dominance.
So, which is really better? It depends on an individual investor’s priorities. But, for me, now in my sixties and more focused on income and lower risk these days, I’m sticking with Lloyds.