Which bank stock to pick? Might as well use a dartboard

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Here's one thing you can say about Canada's Big Banks: Seen one, seen 'em all.

Despite the close examination of the sector by investors, analysts, strategists and fund managers – all looking for the competitive advantage of one bank over another – it turns out that there isn't a whole lot separating them in terms of share price performance.

Over the past five years, to the end of March, Royal Bank of Canada has risen 27.5 per cent. That's a fine return, given the tumultuous nature of the stock market over this period, and it walloped the benchmark S&P/TSX composite index by 36 percentage points.

But Royal's five-year return looks far less noteworthy when compared with its peers: Bank of Montreal has risen a remarkably similar 27.6 per cent over the period – all of 0.1 percentage point difference – while Toronto-Dominion Bank has risen 27.9 per cent and Bank of Nova Scotia has risen 23.6 per cent.

The difference between the worst-performer and the best-performer is little more than four percentage points (when you ignore Canadian Imperial Bank of Commerce, the outlier in the group that significantly underperformed during this period), despite 20 quarterly earnings reports each, about 1,250 trading days and coverage by nearly two dozen analysts.

The natural inclination for an investor is to surrender any preference: Pick one bank stock at random or simply buy an index that tracks them all. Then, ignore all earnings reports and analyst commentary, and collect your hefty quarterly dividends.

To be sure, surrendering the freedom to select your stocks sounds plain lazy and crazy to many stock-picking enthusiasts.

They can rightly point out that Canadian banks are quite different beneath their conservative exteriors. Some have a bigger international exposure, while others have a bigger share of domestic residential mortgages – strategies that will surely lead to performance differences with time.

Indeed, the five-year period of performance comparisons is just one snapshot. Canadian banks have demonstrated far different returns over other periods.

So far in 2013, Bank of Montreal is beating TD by six percentage points. And over the past decade, Royal has beaten BMO by more than 50 percentage points.

But these differences merely add to the futility to trying to pick winners in this sector: With different stocks winning over different time periods, investors are left with the same problem: Which bank stock will be tomorrow's winner?

In other sectors of the market, astute investors can draw intelligent conclusions based on management skills, product development and other competitive advantages.

With Canadian banks, the advantages aren't so clear.