Having initiated a position in the middle of June, 2% of the fund is now held in Lloyds Banking Group, Stuart and co-manager Ruth Keattch believing that valuations are now more attractive. Similarly, 1.5% of the fund is now held in Man Group, a move Stuart terms “a very contrarian call”.
“Man has now devalued and derated significantly. It has reduced the risk of quant strategy AHL driving the share price by doing the deal with GLG. Its valuation still reflects the wider panic over financials as a whole”, Stuart says.
As the latter comment suggests, the positions are very much valuation-driven rather than reflective of a belief in the attractions of the sector as a whole. “This is not a long-term fundamental investor sector for us,” says Stuart, who says things will be "very, very difficult" for the banking industry should the Greece sovereign debt crisis worsen significantly.
"It’s a radical departure for us; we’ve never had a decent weighting in banks in 11 years of running the fund, and we’re still not wholly in financials, but from time to time the valuations are attractive”.
“The sector is very oversold, and we are attracted to it because of that. But these companies are not going back to valuations seen in the good old days – they should be viewed as oversold utilities.”
By contrast, Stuart has been selling down HSBC, which was the eighth largest position in the fund’s portfolio (2.7%) at the end of May, in order to top up other holdings.
The fund has been adding to existing positions in publisher Reed Elsevier, and its largest holding at the end of May was London Stock Exchange.
Stuart sees both these businesses as new management stories; he adds that in the case of LSE the consolidation speculation in the sector is a bonus and says the firm is “a near-monopoly on 12 times earnings”.
