Speaking at an investment breakfast in London, Walewski acknowledged that the fund has had a tough year to date, but is confident this will continue to turn around. And, financials could be play a significant part in that.
Currently financials as a whole represent the fund’s largest under-weight. It currently has a 4.6% weighting, compared to a benchmark weight over 20%. But, speaking at an investment breakfast in London, Waleski said changing sentiment on the part of the ECB, both in terms of regulatory pressure and an increasing emphasis on steepening the yield curve bodes well for banks.
However, while he is positive on the sector as a whole, he said the fund is not buying yet as it does not want to be too early into the trade.
Initially it plans to enter the space cautiously and is prepared to wait until there is some more certainty regarding the fate of Deutsche Bank, which does represent a risk. But, he added, when we do move we will do so quickly.
Equity research analyst and partner at Alken, Antoine Badel, expanded on the point: “The key part of this is the yield curve, it is 80% of the investment case.
“In this environment you want to own domestically focused retail banks, which are the simplest way to play a yield curve steepening.”
Asked how much of change in the curve would be needed for its investment thesis to be realised, Badel, said a large change is not needed.
“We expect there to be a moderate steepening. ECB has begun to realise that a stable bank is a profitable bank and they are looking to do anything they can to steepen the yield curve,” he said.
Badel said the firm has been travelling to various parts of the continent in recent weeks to scout out potential investment opportunities, with Spain currently looking like the region with the most opportunities.
“We are making our picks now,” Badel said.
