Buxton’s UK Alpha Fund is currently around 25% overweight financials with holdings also in Aviva, Lloyds and HSBC.
He explains: “Our banks are incomparably stronger in terms of capital ratios now than they were in the financial crisis, clearly.
“We have had in the last fortnight two major broker firms put out huge buy notes on British American Tobacco, pointing out it is really good value at less 13 times 2020’s earnings, and Barclays sits on half book value and no one wants to know.
“I make this point purely to highlight that I just do not think that this continued strength in defensives relative to some of these terribly unloved financial stocks is sustainable.”
A different perspective on banks comes from James Illsley, manager of the JPM UK Equity Plus Fund.
He stresses investors must make clear differential between domestic players such as Barclays, Lloyds and RBS; those with connections in the Far East, Standard Chartered and HSBC; and the newer challenger banks, such as OneSavings.
He says: “In broad terms we have a preference for the domestic banks, in particular Lloyds, versus the emerging market plays, and that’s driven by the economic trends we are seeing in those respective markets.
“The UK has been a robust economy and if you have been looking at what’s been happening in emerging markets it has been a challenge for those positioned there in the past couple of years.”
However, there is another value argument to be had: “Having said that, Standard Chartered is 0.6x tangible book and HSBC is trading at a discount down to book.
“There is potential value there, but we want to see some route to realising that value and some stability to the underlying economies if we were to commit to that particular area.”
