This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Warren Buffett is a firm believer in index funds. In fact, in his 2013 letter to Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) shareholders, he wrote that his will recommends that most of the cash that goes to his family be put in a low-cost S&P 500 index fund.

But does Buffett own any index funds himself? The answer is yes. Here are the only two index funds in Buffett’s portfolio — and how they could make you money.

Buffett’s only index funds

Berkshire’s portfolio includes around 50 individual stocks. It also includes a couple of very similar index funds — the SPDR S&P 500 ETF Trust (NYSEMKT: SPY) and the Vanguard 500 Index Fund ETF (NYSEMKT: VOO).

The SPDR S&P 500 ETF Trust, or SPY for short, is run by State Street. It was the first exchange-traded fund (ETF) listed in the U.S. SPY currently has roughly $360 billion in assets under management. Its annual expense ratio is 0.0945%.

The Vanguard 500 Index Fund ETF, or VOO, as its name indicates, is operated by The Vanguard Group. Vanguard was a pioneer of mutual funds years ago. The company launched VOO in 2010. The ETF now has around $686 billion in assets under management. Its annual expense ratio is a super-low 0.03%. 

Both of these ETFs attempt to track the S&P 500 index. Unsurprisingly, their holdings are nearly identical. So are their historical performances.

How they can make you money

Investing in SPY and VOO makes you a partial owner of the 500 biggest companies that trade on major U.S. stock exchanges. You’ll own stakes in companies such as Apple, Microsoft, Amazon, and Buffett’s own Berkshire Hathaway. 

All of these companies work continually to generate more profits for their shareholders. That means they’re trying to make you money.

Many of them even pay you to own them by distributing regular dividends. These dividends are very important over time. Since SPY’s inception in 1993, nearly half of its total return has come from dividend payouts. 

Buffett wrote in that 2013 letter to Berkshire shareholders:

The goal of the non-professional [investor] should not be to pick winners — neither he nor his “helpers” [professional investment managers] can do that — but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal.

That’s still great advice. And, in a sense, the S&P 500 index funds pick winners for you. SPY and VOO automatically weed out the worst companies. If a company doesn’t grow as quickly as its peers, it could eventually fall out of the S&P 500 index (and thus out of the ETFs’ holdings).

Buying and holding SPY and VOO pays off over the long run. SPY has delivered an average annual return of 9.35% since 1993. VOO (which didn’t exist during the steep market downturns in the first decade of this century) has delivered an average annual return of 13.1% since 2010.

The timing is good

But should you buy these S&P 500 index funds now with a bear market underway? Actually, yes.

Buffett’s advice would almost certainly be in favor of buying either of these two ETFs. He told CNBC in 2018, “The best chance to deploy capital is when things are down.” And, of course, there’s one of the legendary investor’s most famous quotes to “be fearful when others are greedy and to be greedy only when others are fearful.”

Granted, you won’t be able to beat the market with SPY and VOO since they essentially reflect the overall market performance. For most investors, that’s not a problem. If you’re one of the exceptions, though, you can always follow in Buffett’s footsteps. Even though the multibillionaire is a big fan of index funds, he still loves to buy high-quality stocks at reasonable prices. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post The only 2 ETFs in Warren Buffett’s portfolio — and how they could make you money appeared first on The Motley Fool Australia.

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More reading

• Looking to buy ASX cannabis shares right now? You’ll want to watch this
• Why is the Fortescue share price firing up 4% today?
• Here’s what small-cap stocks can do for your portfolio
• Here are the 3 most heavily traded ASX 200 shares on Monday
• Woolworths shares are ‘fully valued’ and investors should buy Coles instead: broker

Keith Speights has positions in Amazon, Apple, Berkshire Hathaway (B shares), Microsoft, and Vanguard S&P 500 ETF.  John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon, Apple, Microsoft, and Vanguard S&P 500 ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Amazon and Apple. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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ASX cannabis shares haven’t exactly been smoking hot this year.

That’s partly because similar headwinds facing cannabis stocks worldwide have hit the sector.

Firstly, there’s rocketing interest rates. Higher rates have hit growth shares particularly hard as investor risk appetite has waned. Secondly, there’s the slowing pace of legalised markets across the world.

Legislation in the United States, the world’s largest economy, is being closely watched. But the future of the legal marijuana market in the highly influential nation remains uncertain.

ASX cannabis shares under pressure

So how have these headwinds impacted ASX cannabis shares?

Well, so far in 2022:

• Incannex Healthcare Ltd (ASX: IHL) shares are down 64%
• Creso Pharma Ltd (ASX: CPH) shares are down 65%
• Bod Australia Ltd (ASX: BOD) shares are down 60%

With the US markets having a big impact here in Australia, investors would do well to keep an eye on the midterm election results. The election is being held tomorrow, 8 November, with results expected over the coming days.

Why the US midterm elections matter to investors Down Under

If you’re looking at buying ASX cannabis shares, here’s what’s a stake in the midterm elections.

First, US President Joe Biden has expressed a desire to legalise marijuana on a Federal level. Currently, it remains illegal federally, despite a growing number of states having given recreational and medicinal use the green light.

As you may recall, on 7 October, Biden said he was pardoning everyone convicted of simple marijuana possession under federal law.

US cannabis shares broadly rallied, as did several on the ASX.

Incannex Healthcare shares leapt 11% over two days from the closing bell on 11 October through the end of trade on 13 October.

Bod Australia also shot 11% higher on 11 October.

Creso Pharma went the other direction. The ASX cannabis share lost 25%. Though it should be noted that came after the company announced a shakeup to its board and a potentially unwanted name and branding change proposal.

Now, if the Republicans retake control of either the House or Senate, it’s unlikely that marijuana will be legalised on a federal level anytime soon. And, according to most polls, it’s likely the Democrats will lose at least one of those chambers of Congress.

But let’s not forget how unreliable polls have been in recent years.

The second thing to watch that could have a knock-on effect on ASX cannabis shares is the referendums taking place on a state level.

Voters in five US states – Maryland, Arkansas, Missouri, North Dakota and South Dakota – will decide whether their state joins the legal bandwagon or maintains the status quo.

Maryland is one to pay particularly close attention to.

According to Bloomberg Intelligence analyst Kenneth Shea, “If four or five approve, it would probably be deemed a positive, but if Maryland does not approve, that would definitely be deemed a negative.”

Stay tuned.

The post Looking to buy ASX cannabis shares right now? You’ll want to watch this appeared first on The Motley Fool Australia.

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More reading

• Why did the Incannex share price go up in smoke in October?
• Why Ampol, Cann, Reliance Worldwide, and South32 shares are dropping
• Why is everyone talking about ASX cannabis shares all of a sudden?
• Is ASX 300 healthcare company Incannex profitable?

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Fortescue Metals Group Limited (ASX: FMG) share price is up around 4%, at the time of writing.

The ASX iron ore mining share is one of the leading performers within the S&P/ASX 200 Index (ASX: XJO), though gold miners are leading the way.

Let’s have a look at what’s happening with the commodity prices.

Iron ore price

According to Commsec, the iron ore price went up by 2.1% to US$85.16 in overnight markets.

Commodity businesses’ success is heavily leveraged to the price of that commodity.

A change in the iron ore price doesn’t really change how much it costs to mine a tonne of iron. So, getting extra revenue for that tonne of production largely adds to the company’s net profit after tax (NPAT) and cash flow.

FY21 was a good example of that – while revenue increased by 74% to US$22.3 billion, NPAT went up by 117% to US$10.3 billion.

FY22 showed that effect in reverse. Revenue dropped 22% to US$17.4 billion while NPAT fell 40% to US$6.2 billion.

What is helping Fortescue shares?

According to reporting by various media, including the Australian Financial Review, some participants in commodity markets think that there could be a resurgence in commodity prices because China may decide to “ease travel and other COVID-19 related restrictions”.

Reporting by Reuters said that “a former Chinese senior disease control official told a closed-door conference that substantial changes to the country’s zero-COVID policy were set to take place in the next five to six months, according to a recording of the session heard by Reuters.”

Reuters quoted Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, who said:

Any indication that some rules could be relaxed would be an immediate dose of grease in the jarring cogs of China’s economy.

China is the biggest customer of Australian iron ore, so what happens there can have a significant impact on what happens with the iron ore price and therefore the Fortescue share price.

In the past, China has used infrastructure spending to try to boost its economy. Steel, which needs iron, is usually an important part of an infrastructure project.

Broker opinions on the Fortescue share price

One of the latest views comes from Citi, with a neutral rating and a price target of $16.70. That implies that Fortescue shares will be flat for the next year.

It has reduced its expectations for the iron ore price over the next year. Citi thinks that Fortescue is valued at 12 times FY23’s estimated earnings and 8.5 times FY24’s estimated earnings.

The post Why is the Fortescue share price firing up 4% today? appeared first on The Motley Fool Australia.

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More reading

• Why are ASX 200 mining shares bolting out the gates on Monday?
• Looking to buy Fortescue shares? Here are the questions I asked before jumping in
• Hotels, hurt feelings, and HR hassles, but Fortescue’s biggest shareholder still got richer this week
• What’s the forecast for the iron ore price right now?
• Which ASX 200 mining shares managed to dig up gains in October?

Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The De Grey Mining Limited (ASX: DEG) share price is taking off on Monday despite no news from the S&P/ASX 200 Index (ASX: XJO) gold developer.

Its strong performance sees it leading the index alongside the share price of its major shareholder, Gold Road Resources Ltd (ASX: GOR).

Speculation the latter ASX 200 gold stock could be considering a takeover bid for the former has emerged in recent weeks amid news of multiple major takeovers on the Aussie bourse.

At the time of writing, the De Grey Mining share price is trading 6.67% higher than its previous close at $1.12.

Meanwhile, the ASX 200 is up 0.45% and the S&P/ASX 200 Materials Index (ASX: XMJ) is the market’s best-performing sector, gaining 3.59% today. At the same time, the S&P/ASX All Ordinaries Gold Index (ASX: XGD) is up 4.79%.

So, could a takeover bid be on the cards for De Grey Mining? Let’s take a look.

Could this be bolstering the De Grey share price?

The De Grey Mining share price is launching higher today alongside that of its major shareholder and its home sector. Its gains also come amid what appears to be the season for takeovers.

Nitro Software Ltd (ASX: NTO), Perpetual Limited (ASX: PPT), and ReadyTech Holdings Ltd (ASX: RDY) have all been hit with acquisition offers in the last week. Tyro Payments Ltd (ASX: TYR) also recently confirmed it has been approached by multiple parties – including Westpac Banking Corp (ASX: WBC) – in search of a takeover.  

And one happening in recent weeks appears to have fanned rumours De Grey Mining could be a takeover target too.

Speaking on whether Gold Road would nominate a director to De Grey’s board last fortnight, CEO and managing director Duncan Gibbs commented, courtesy of The Australian:

I guess it’s not abnormal for a company … that has a 20% position to have a board nominee.

[T]here are pros and cons to doing that and, at the moment, it’s not something that we’ve approached De Grey about.

Gold Road inherited a 14.45% stake in De Grey through its acquisition of DGO Gold earlier this year. It has since bumped that up to 19.99%. At the time, the company commented:

At this stage, this shareholding is seen as a long-term investment and Gold Road does not intend to make a takeover bid or other offer for [De Grey], but Gold Road reserves its right to do so.

Some have reportedly noted Gold Road’s hesitation to appoint a nominee to De Grey’s board could indicate it’s planning to post a takeover bid. Particularly as three De Grey board members have stepped down in recent months. However, such talk is pure speculation for the time being.

The post Why is the De Grey Mining share price leaping 7% today? appeared first on The Motley Fool Australia.

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More reading

• Here are the 3 most heavily traded ASX 200 shares on Monday
• Why is the Telstra share price trailing the ASX 200 on Monday?
• No deal: Why ASX 200 coal share Coronado is sinking today
• Why is the Macquarie share price starting the week lower?
• Do Wesfarmers shares really offer 22% upside AND growing dividends?

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Readytech Holdings Ltd and Tyro Payments. The Motley Fool Australia has recommended Nitro Software Limited, Readytech Holdings Ltd, Tyro Payments, and Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

There are many different categories stocks can fall under, but one of the most common ways to classify them is by size (based on market capitalization). In this vein, there are three main categories: small-cap, mid-cap, and large-cap.

Small-cap stocks are those with a market cap between $300 million and $2 billion; mid-cap stocks range from $2 billion to $10 billion; and large-cap stocks are those above $10 billion.

There’s no “right” one to invest in, and proper diversification encourages investors to own a mix of different-sized stocks. But let’s take a look at small-cap stocks and examine what they can do for your portfolio.

Higher risk-reward proposition

Contrary to their name, small-cap stocks are not necessarily young companies that recently went public, although they can be. Many have mature businesses and have been around for quite a while. A small-cap stock may simply operate in a smaller market. In today’s environment, after the steep sell-off this year, a lot of mid-cap stocks have fallen back into small-cap territory as well.

Small-cap stocks generally present a bigger risk-reward proposition, because they can grow faster than their larger peers but also come with greater risk, because there may be more volatility in their earnings reports quarter to quarter. They also may not have the same impregnable balance sheets investors tend to flock to during a recession.   

But I love small-cap stocks and would recommend having at least a few in your portfolio, especially if you have a long-term investment horizon. Small-cap stocks give the average retail investor an opportunity to outperform institutional investors and the broad market. For example, the Russell 2000 small-cap stock index has beaten the benchmark S&P 500 and Dow indexes since the turn of the century.

Data by YCharts.

Why can small-cap names outperform?

Small-cap stocks aren’t as heavily covered by analysts on Wall Street, because these equity research teams are usually part of investment banks that use analyst coverage as a way to drum up business. There’s more incentive for analysts to focus on bigger companies with more money to spend. Additionally, many mutual funds internally choose not to purchase small-cap stocks because of their greater potential for volatility.

This leaves a lot of room for investors to find great companies flying under the market’s radar. Let me give you a few examples from my own portfolio. One small-cap stock I own is Silvergate Capital (NYSE: SI), which has a $1.67 billion market cap as of this writing. Silvergate is one of the first banks that built a real-time payments system specifically for large cryptocurrency traders and exchanges, because the U.S. banking system doesn’t operate in real-time, while crypto trades around the clock.  

When the price of Bitcoin took off in 2020 and 2021, the stock had a first-mover advantage and surged as more institutional investors started to trade crypto. While things have cooled off during the crypto winter, I still expect more institutional traders to move into crypto trading long term, which positions Silvergate well. Now, this is an early market, and its future is still uncertain, but you can also see how much growth potential it might have with the institutional space still in the early innings of crypto trading.

Another example is a real-estate stock called Seritage Growth Properties (NYSE: SRG), which has a market cap of about $650 million. Originally spun out from Sears to maximize the value of the retailer’s real estate, Seritage has really struggled since the start of the pandemic. Recently, management said it’s planning to sell all of the company’s remaining assets, pay off its debt, and distribute the remaining earnings to investors. The stock currently trades at $11.30 per share, but management expects the distribution proceeds from the liquidation to range from $18.50 to $29.00 per share. Just one analyst covers the stock.   

Years of struggles and concerns about the mall and shopping center real estate that makes up Seritage’s portfolio have kept the stock trading at a huge discount to the liquidation estimates. But even at the bottom of the range, investors could enjoy a more than 60% return in approximately two years’ time.

Buy some small-cap stocks

Everyone has their own investing strategy, and there’s no requirement to buy small-cap stocks. However, all but the most conservative and risk-averse investors could benefit from dedicating at least a small percentage of their portfolios to these stocks.

They’ve proven they can outperform the broad market long term, and they give investors a better chance of finding overlooked gems.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Here’s what small-cap stocks can do for your portfolio appeared first on The Motley Fool Australia.

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• Here are the 3 most heavily traded ASX 200 shares on Monday
• Woolworths shares are ‘fully valued’ and investors should buy Coles instead: broker
• Are ASX 200 bank shares a no-brainer buy in an inflationary environment?
• Why ANZ, Coronado Global, Eclipx, and Westpac shares are dropping
• Could this help turn a corner for the Lake Resources share price?

Bram Berkowitz has positions in Bitcoin, Seritage Growth Properties (Class A), and Silvergate Capital Corporation and has the following options: long January 2023 $10 calls on Seritage Growth Properties (Class A). The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Seritage Growth Properties (Class A) and Silvergate Capital Corporation. The Motley Fool Australia owns and has recommended Bitcoin. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.  

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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It’s turned out to be a very welcome start to the week for the S&P/ASX 200 Index (ASX: XJO) so far this Monday. After a volatile week last week, the ASX 200 has opened this week in the green, presently enjoying a gain of 0.5% to just over 6,920 points.  

But let’s now dive deeper into these Monday market moves and check out the shares that are currently topping the ASX 200’s share trading volume charts, according to investing.com.

The 3 most traded ASX 200 shares by volume this Monday

Pilbara Minerals Ltd (ASX: PLS)

Our first share up is the ASX 200 lithium heavyweight Pilbara Minerals. This Monday has seen a sizeable 11.13 million Pilbara shares exchanged thus far. Pilbara never needs much to see its volumes spike, and today is no different it seems.

With the company up a robust 1.65% at $5.24 a share, it looks as though we have another share price gain to thank for the volumes we see since there have been no announcements or developments out of the company itself.

South32 Ltd (ASX: S32)

Our next share today is an ASX 200 miner in South32. So far this Monday, a decent 11.55 million South32 shares have traded on the markets. There’s been no news from the company itself today. However, South32 has been enjoying some outsized gains over this session.

Currently, the miner is up a pleasing 3.94% at $3.96 a share, the likely cause of the elevated volumes we see. As my Fool colleague covered this morning, higher commodity prices seem to be behind this share price move.

Core Lithium Ltd (ASX: CXO)

Our final and most traded share today is none other than Core Lithium, another ASX 200 lithium share. This Monday has had a notable 12.1 million Core Lithium shares bought and sold on the markets thus far.

Once more, we seem to have another share price movement to thank for the high trading volumes that Core Lithium is displaying. The lithium share is currently up a happy 3% to $1.45 a share today, despite no news out of the company either.

The post Here are the 3 most heavily traded ASX 200 shares on Monday appeared first on The Motley Fool Australia.

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• Why is the Telstra share price trailing the ASX 200 on Monday?
• No deal: Why ASX 200 coal share Coronado is sinking today
• Why is the Macquarie share price starting the week lower?
• Do Wesfarmers shares really offer 22% upside AND growing dividends?
• Has this overlooked ASX 200 share really gained more than 1,200% in just 10 years?

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Woolworths Group Ltd (ASX: WOW) shares are having a subdued start to the week.

In afternoon trade, the retail giant’s shares are trading largely flat at $32.56.

This compares unfavourably to the ASX 200 index, which is up over 0.4% at the time of writing.

What’s going on with Woolworths’ shares?

Investors have been holding off buying Woolworths shares after brokers responded somewhat negatively to the company’s first quarter update.

In case you missed it, last week Woolworths released a sales update for the three months ended 2 October. That update revealed that the company delivered a 1.8% increase in group sales to $16,363 million.

However, rather than its supermarkets business driving the growth, it was (unexpectedly) the Big W and Australian B2B businesses doing the heavy lifting. In fact, the key Australian Food business reported a 1.1% comparable store sales decline for the period.

This was particularly surprising given that its rival Coles Group Ltd (ASX: COL) reported a 2.1% increase in comparable store sales for the same period.

What are brokers saying?

The team at Morgans wasn’t overly impressed. In response, the broker has retained its hold rating and cut its price target on Woolworths shares by 8.5% to $34.10. This implies modest upside from current levels. Morgans commented:

Woolworths’ 1Q23 sales trading update overall was weaker than we expected. LFL sales: Australian Food -1.1% (vs MorgansF +0.2%), NZ Food -3.3% (vs MorgansF -0.5%) and BIG W +29.9% (vs MorgansF +25.0%).

However, the broker acknowledges that management has revealed that sales trends have improved in October.

Management said year on year sales growth trends in Australian Food have improved in October as the business cycles out of the NSW and VIC lockdowns of last year, with the 3-year sales growth rate broadly in line with 1Q23.

Nevertheless, its analysts just don’t see enough value in Woolworths shares to be able to recommend them as a buy and prefer rival Coles. They conclude:

Our target price decreases to $34.10 and we maintain our Hold rating. Trading on 23.5x FY23F PE and 3.1% yield we continue to see the stock as fully valued and continue to prefer Coles in the Staples sector.

Morgans has an add rating and $19.50 price target on Coles’ shares.

The post Woolworths shares are ‘fully valued’ and investors should buy Coles instead: broker appeared first on The Motley Fool Australia.

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• Top brokers name 3 ASX shares to buy next week
• Brokers name 2 ASX 200 dividend shares to buy
• Brokers name 3 ASX shares to buy today
• 5 big ASX announcements making news this week
• Why Flybuys could cost Coles shares amid greater cyber concerns

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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S&P/ASX 200 Index (ASX: XJO) bank shares are an interesting investment proposition. The question is: Are bank shares a no-brainer buy right now in this time of high inflation?

Now is a busy period for the banking sector because it’s reporting time for three of the big four banks: Australia and New Zealand Banking Group Ltd (ASX: ANZ), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd (ASX: NAB).

We’ve already heard the earnings results from ANZ, Westpac has reported today and NAB is expected to report on 9 November. Commonwealth Bank of Australia (ASX: CBA) has a reporting period that ends in June, which is then reported in August.

Let’s take a look at where inflation comes into the banking equation.

What’s going on in the banking world with inflation?

Inflation measures the prices of a broad range of products and services.

The Australian Bureau of Statistics (ABS) recently released the quarterly inflation numbers for the period ending September 2022.

For the three months to September 2022, the consumer price index (CPI) rose 1.8% for the quarter. Over the 12 months to September 2022, the CPI rose 7.3%, according to the ABS.

It was revealed that the most significant price rises were within new dwelling purchases (3.7%), gas and other household fuels (10.9%) and furniture (6.6%).

In terms of the bank’s costs, we have seen that ANZ reported that its total expenses to run the bank were flat. Of the total $9.17 billion cash expenses, it saw a cost uplift of $289 million, but then productivity gains saved $261 million.

But, ANZ did say that expense trends “will be impacted by headwinds arising from wage and vendor cost inflation”. It’s expecting its FY23 expenses to increase by around 5%, though it anticipates revenue growth to be higher than cost growth.

Turning to what Westpac said today, the bank reported that its total expenses were down 7% to $10.8 billion, excluding notable items. While ongoing expenses increased by $11 million, Westpac is working on reducing its current cost base.

Interest rates

ASX 200 bank shares generate most of their profit from lending. So, inflation itself doesn’t necessarily improve profitability for the banks.

However, in the RBA’s words, inflation is “too high”. The RBA has significantly increased interest rates since May, a necessary evil “to establish a more sustainable balance of demand and supply in the Australian economy to help return inflation to target”.

Despite increasing the cash rate target by 25 basis points to 2.85%, the RBA said it expected to “increase interest rates further over the period ahead”.

A higher interest rate is having the effect of boosting the ASX 200 bank shares’ net interest margins (NIM). This measures how much profit banks are making on their loans. It compares the lending rate against the cost of that lending (such as savings accounts and term deposits).

In the first half of FY22, ANZ’s NIM was 1.58%. In the second half of FY22, this had risen to 1.68%. The exit margin for September 2022 was 1.8%. According to the bank, it could earn over $3 billion more profit in FY25 compared to FY22 thanks to higher interest rates.

Westpac also reported that its underlying NIM improved by 10 basis points from 1.7% in the first half of FY22 to 1.8% in the second half of FY22.

Foolish takeaway

While banks are gaining a tailwind from the rising interest rates, it’s not extra profit with no risk. Can households afford to pay hundreds – or thousands – of dollars more a month in loan repayments (plus everything else that has risen in price)?

Dividends from the ASX 200 bank shares may grow, but I’m keeping an eye on how loans in arrears may increase as these challenging economic times take their toll on borrowers.

The post Are ASX 200 bank shares a no-brainer buy in an inflationary environment? appeared first on The Motley Fool Australia.

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More reading

• Why ANZ, Coronado Global, Eclipx, and Westpac shares are dropping
• Why is the Westpac share price dropping 4% today?
• Everything you need to know about the latest Westpac dividend
• Why is the ANZ share price sinking 4% today?
• Are NAB shares a buy ahead of this week’s results?

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The S&P/ASX 200 Index (ASX: XJO) has started the week positively. In afternoon trade, the benchmark index is up 0.4% to 6,922.1 points.

Four ASX shares that have failed to follow the market higher today are listed below. Here’s why they are dropping:

Australia and New Zealand Banking Group Ltd (ASX: ANZ)

The ANZ share price is down 4.5% to $24.32. There are a couple of reasons for this share price decline. One is weakness in the banking sector and the other is the bank’s shares trading ex-dividend today for its final dividend of FY 2022. Eligible shareholders can look forward to receiving this fully franked 74 cents per share dividend next month on 15 December.

Coronado Global Resources Inc (ASX: CRN)

The Coronado Global share price is down almost 6% to $2.14. This morning this coal miner announced that merger talks with $6 billion Wall Street-listed coal miner Peabody have been discontinued. No reason was given for the collapse in talks. However, Coronado revealed that it continues to pursue and implement its existing capital management plans and remains focused on its existing capital investments and long-term development strategy.

Eclipx Group Ltd (ASX: ECX)

The Eclipx share price is down over 6% to $1.76. This follows news that the fleet management company’s CEO, Julian Russell, will be stepping down from the role in February. Eclipx has acted quickly and named its CFO, Damien Berrell, as Russell’s replacement.

Westpac Banking Corp (ASX: WBC)

The Westpac share price is down over 4% to $23.14. Investors have been selling this banking giant’s shares following the release of its full year results. Although Westpac delivered earnings ahead of expectations, its exit margin and cost reduction target revision appear to have disappointed investors. In respect to the latter, Westpac is now targeting an FY 2024 cost base of $8.6 billion, up from its previous target of $8 billion.

The post Why ANZ, Coronado Global, Eclipx, and Westpac shares are dropping appeared first on The Motley Fool Australia.

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More reading

• No deal: Why ASX 200 coal share Coronado is sinking today
• Why is the Westpac share price dropping 4% today?
• Everything you need to know about the latest Westpac dividend
• Why is the ANZ share price sinking 4% today?
• Westpac share price on watch following FY22 results

Motley Fool contributor James Mickleboro has positions in Westpac Banking Corporation. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Lake Resources N.L. (ASX: LKE) share price is charging higher today, up 7.4% in afternoon trade.

Lake Resources shares closed Friday trading for $1.08 and are currently changing hands for $1.16 apiece.

The wider materials sector is broadly outperforming today as well, with the S&P/ASX 200 Materials Index (ASX: XMJ) up 3.4% at the time of writing compared to a 0.4% gain posted by the S&P/ASX 200 Index (ASX: XJO).

Despite today’s big boost, the Lake Resources share price has underperformed most ASX lithium shares in 2022.

Today’s gains put the lithium explorer back in the green for the calendar year. However, shares are only up 6%.

We say ‘only’ because the competition has broadly gained far more.

Core Lithium Ltd (ASX: CXO) shares, for example, are up a whopping 127% in 2022, while the Pilbara Minerals Ltd (ASX: PLS) share price has surged 48%.

Could this help turn a corner for the Lake Resources share price?

In a non-price sensitive announcement today, that could still bode well for the Lake Resources share price over time, the company reported it has appointed Karen Greene as a senior vice president.

Greene has more than 20 years of experience in leading US companies.

She will head investor relations at Lake Resources, in an appointment intended to strengthen the miner’s management team and build the business for the long term.

Lake Resources executive chairman, Stuart Crow said Greene will help the company with its environmental, social and governance (ESG) considerations in supply chains.

“She also has hands-on experience in helping companies grow and mature – as well as branding and marketing expertise as we progress our cleaner way of producing lithium,” Crow added.

The post Could this help turn a corner for the Lake Resources share price? appeared first on The Motley Fool Australia.

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More reading

• The Lake Resources share price leapt 18% in October. Here’s what drove the ASX 200 lithium share higher
• Here are the top 10 ASX 200 shares today
• Why Atlantic Lithium, Coronado Global, Lake Resources, and Rio Tinto are charging higher
• Here are the 3 most traded ASX 200 shares on Wednesday
• Lake Resources share price leaps 10% on ‘excellent early results’

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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