The Daily Telegraph - Saturday - Money
Is now the time to buy back into big banks?
Ten years on from the financial crisis that led to the British taxpayer coughing up tens of billions to bail out the banks, professional investors are returning to the troubled sector. More fund managers are adding bank stocks to their portfolios and dedicating an increasingly significant proportion of their funds to them.
A recent survey from Bank of America Merrill Lynch found that professional managers were more heavily invested in bank shares than in any other sector, relative to historical averages.
Some fund managers believe that banks have become a less risky prospect after years of more stringent regulation. Potential interest rate rises should enable banks to expand profit margins, because they hold larger amounts of cash in reserve, and there is the promise of larger dividends after a decade in which some stopped paying them altogether.
Hugh Sergeant, manager of the £500m River & Mercantile World Recovery fund, said: “The upshot for investors is that, after a decade of restructuring, many global banks now look set to be able to grow again.”
Despite these improvements, bank stocks still look cheap compared with the wider market. So, with the professionals piling in, is it time for DIY investors to follow suit?
Alex Wright, manager of Fidelity’s £3.3bn Special Situations fund, said regulation had been good for investors as it had forced banks away from more exotic and high-risk loans.
Mr Wright owns five different bank stocks, including Lloyds, Citibank, RBS and Bank of Ireland. They account for around 14pc of his fund.
He said banks had reverted to simpler forms of lending and another
Bank shares are back in favour with fund managers. Should DIY investors follow suit and pile in, asks Harry Brennan