Gary Yeowell The John Hancock Financial Opportunities Fund ( NYSE: BTO ) is a closed-end fund that invests primarily in the banking sector of the economy. This is not exactly the most popular sector right now, as banks are generally perceived to deliver better performance during periods of low interest rates. However, historically, this is not exactly correct.
This chart shows the net interest margin of U.S. banks over the 2000 to 2021 period (unfortunately, more recent data is not available from either the World Bank or the Federal Reserve): Federal Reserve Bank of St.
Louis/World Bank It is difficult to see a negative correlation between interest rates and net interest margin. After all, interest rates in 2000 were at higher levels than they are today, but net interest margins were at the highest levels that were seen at any time during the 21st century. We also see net interest margins rising over the 2016 to 2019 period, which also saw the Federal Reserve slowly raising interest rates from all-time lows.
Then, we also see the net interest margin hit a two-decade low in 2021 despite interest rates being basically zero. Indeed, if anything, this chart seems to suggest that there is either no correlation between net interest margins and prevailing interest rates or that banks are actually more profitable when interest rates are high. The sole exception to this rule is the 2008 to 2010 period, which saw a surge in net interest margins but a rapid decline in interest rates.
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