Over the past three months, Bignell has moved from being “massively underweight” financials to holding about one-fifth of the £28.3m Invesco Perpetual European Opportunities Fund in the sector.
At the end of July, the portfolio’s allocation to financials was just 5.83%. Speaking at Portfolio Adviser’s Europe Expert Investor event yesterday, the manager revealed that close to 20% is now in financials.
Bignell said: “What’s becoming clear is some of the better banks are succeeding in deleveraging and are close to being at Basel III compliance.
“For those kind of stocks, they’ve traded too cheaply. I don’t think the banking sector is about to go back to super-normal returns but it’s about valuations catching up with reality.”
Mario Draghi’s announcement of outright monetary transactions by the European Central Bank to support eurozone sovereign borrowing costs also prompted Bignell’s move towards financials, as it reduced political risk facing the sector.
“[Financials] are closely tied to the fate of the sovereigns,” he explained. “What Draghi has said and done to take the tail risk off the break-up of the eurozone helps the banking sector – it’s a direct beneficiary.”
Bignell initiated two new positions when increasing the financials allocation, buying Swiss investment company EFG Financial Products after its initial public offering in October and German stock exchange operator Deutsche Boerse.
The increase in financials was funded by selling oil and gas holdings, the manager added. Oil and gas is the largest sector allocation, accounting for more than one-third of the portfolio before Bignell finished adding to financials.
