SLI’s Ramos Martin avoids buying European banks as ‘big macro plays’


Standard Life Investments equity manager Jaime Ramos Martin says investing in European banks as “big macro plays” on the region’s recovery risks missing underlying stock-specific issues.

According to the latest factsheet, the £60.3m SLI European Equity Growth fund has its largest exposure in financials. However the manager points out that within this exposure he is “very overweight” insurance companies but underweight banks.

Ramos Martin goes onto stress that the fund is ultimately not sector-driven and maintains a bottom-up fundamental focus.

The example of the fund’s exposure to banks sees Ramos Martin demonstrate this point, arguing that the general move to buy European banks as a recovery play can bypass lingering issues that still exists for many individual banks.

He says: “European banks are basically big macro plays. They have started to perform of late because GDP looks a bit better and people are also thinking that surely if provisions go down then revenues can go up.

“The problem with this argument is that it misses a lot of the stock specifics. In my view yes the capital position on a lot of banks has recovered and yes the provisions are starting to stabilise, but they are very far away from paying dividends. You cannot just say GDP is recovering so I’ll buy European banks, you have to mindful.”

By comparison the insurance companies gives exposure to the recovery theme in Europe but is also backed by healthier stock specifics in the sector overall, says Ramos Martin.

“The insurance sector went through their cirsis in 2000-2001 when equities sort of blew up and changed their business models as a consequence,” he adds.

“So essentially now insurance stocks give you that similar exposure to the improvements in the general environment in Europe but at they same time their capital businesses are very healthy, regulation is clear and you are getting very good dividends.”

However Ramos Martin again reinforces the differing stock specifics within the financials sector by giving an example of the fund’s holding in multinational Spanish bank BBVA. He says: “BBVA ticks the boxes of the issues I have with the sector.

“It doesn’t have capital issues and I am comfortable with the provisions. Then there is the upside from the recovery in Spain too.”