There’s more than one way to invest in Australia’s Big Banks

But their success has created an unintended consequence. Banks have become so dominant in Australian portfolios that many investors may now have far greater exposure to the sector than they realise.

None of this is an argument against owning banks. The major lenders remain central to Australia's economy and, for many investors, an important source of income. The question is whether portfolios have become too dependent on them. In a market as concentrated as Australia's, owning more banks is not always the same thing as being more diversified.

The hidden concentration risk in Australian equities

The fundamental reason the Big Banks have created such a concentration challenge is that exposure to the sector often appears in multiple places at once. A portfolio might contain direct holdings in the major banks, exposure through an Australian equity ETF and additional exposure through a superannuation fund.

The relationship many Australians have with the major banks extends well beyond a mortgage or savings account. It is reflected in their investment portfolios too. Research published by Market Index, citing Morgan Stanley analysis, found that retail investors owned a significant share of Australia's major banks, with more than half of Commonwealth Bank and Westpac shares held by retail investors in 2022.

Table 1: Who owns Australia's Big Four banks? (2022)

Source: Morgan Stanley, as cited by Market Index, December 2022. This was the latest publicly available ownership data identified at the time of writing and is provided for illustrative purposes only.

That distinction matters because diversification is not simply about the number of investments held. A portfolio with 20 holdings can still be heavily concentrated if many of those holdings depend on the same economic conditions to perform well.

In Australia's case, those conditions often include housing activity, credit growth and the profitability of the banking sector. Investors who understand where their exposures overlap are often in a better position to make deliberate portfolio decisions rather than accidental ones.

Why bank concentration matters

The challenge with concentrated bank exposure is not simply that one company might disappoint. It is that several investments can respond to the same event at the same time.

If housing activity slows, credit growth weakens or lending conditions tighten, the effects can ripple across the banking sector. The interest-rate cycle that began in 2022 was simply the latest example. Higher rates initially supported bank earnings, but they also slowed parts of the economy that banks depend on, including housing activity and credit growth. While every cycle is different, Australian banks have long been influenced by many of the same underlying economic forces.

Chart 1: Australian banks have historically moved with the credit cycle

Source: ABS, Bloomberg, VanEck. As at 31 May 2026. Past performance is not an indicator of future performance. You cannot invest directly in an index.

This is just one reason why diversification across types of holdings is as important as the number of holdings. The more a portfolio depends on a single sector or economic theme, the greater the risk that a single development has an outsized impact on overall outcomes.

Smarter ways to access bank exposure

Investors today can access the banking sector in several different ways, each with its own trade-offs. Some approaches focus on equity ownership and dividend income. Others provide exposure through debt markets, offering different risk and return characteristics.

The important point is that bank exposure is no longer a binary choice between owning the big four or avoiding them altogether. In a market as concentrated as Australia's, how investors access the sector can be just as important as how much of the banking sector their portfolio owns.

Table 1: Different ways to access exposure to the Big Banks

Importantly, the products shown above do not provide identical exposure to the major Australian banks; they also include exposure to other banks and companies. While MVB offers concentrated exposure to the banking sector, other strategies may include varying levels of exposure to banks alongside other issuers, securities and sources of return. Understanding these differences can help investors choose the type of bank exposure that best aligns with their income needs, risk tolerance and broader portfolio objectives.

Diversification beyond the Big Banks

For some investors, the answer may not be finding a different way to access banks. It may be reducing reliance on the sector altogether.

One way to do that is by broadening exposure to other parts of the Australian market. An equal-weight strategy such as VanEck Australian Equal Weight ETF (ASX: MVW) reduces the influence of the largest companies within the ASX 200, designed to reduce the concentration that naturally develops in market capitalisation-weighted benchmarks.

Quality-focused approaches, such as VanEck MSCI Australian Quality Plus ETF (ASX: AQTY), take a different path by seeking companies with strong fundamentals rather than simply allocating more capital to the biggest names.

Neither approach excludes banks altogether, but we think both may help investors build a portfolio that relies less heavily on a single sector or economic theme to drive returns.

Rethinking bank exposure in modern portfolios

Australian investors do not need to stop owning the banks. But it may be worth reconsidering how that exposure is built. Whether the goal is income, diversification or reducing concentration risk, investors now have more ways to access, or reduce reliance on, Australia's banking sector than simply buying another bank share.

Key risks

An investment in any of the funds may carry risks associated with: ASX trading time differences, financial markets generally, individual company management, industry sectors, foreign currency, country or sector concentration, hedging, political, regulatory and tax risks, fund operations and tracking an index. While it is not possible to identify every risk relevant to your investment, we have provided details of the risks that may affect an investment in the relevant product disclosure statement and the target market determination.