Managers of specialist financials funds remained calm in the face of turmoil in the banking sector last week. EEA Fund Management’s Simon Shaw and New Star’s Guy de Blonay both kept asset allocations largely unchanged.
“We are not doing anything particularly different,” says Shaw. “The sector remains short of capital and we are waiting to see what America does. The restructuring [a plan to reduce American banks’ exposure to mortgage debt] could be fundamental. We seem to be getting to the end of the financials crisis.”
Shaw says the £60m EEA UK Financials fund holds several stocks not directly involved in the credit markets. The fund also has a small weighting in Lloyds TSB. Shaw says the bank overpaid for HBOS, but he supports the proposed deal from a strategic standpoint. “The combined firm will have 17% of the life and pensions market – that is a material competitive advantage,” he says.
At New Star, de Blonay is maintaining an “extremely defensive” stance in the firm’s £220m Global Financials fund. The portfolio has no exposure to investment banks and instead focuses on companies with strong retail franchises. According to de Blonay, he is finding “real value” in companies such as Natixis, which is trading at 60% of its book value.
Despite his cautiously upbeat view on consolidation in the banking sector, Shaw says the next challenge for financials is the slowing economic environment. “Banks need to raise more capital and as the economy worsens we will see more bad debts,” he says.
l See Analysis, page 28