Subprime lender Northern Rock was allowed to go to the wall, while banking heavyweights Lloyds and Royal Bank of Scotland both received hefty handouts from the government to keep them afloat.
In 2012, the financials sector as a whole contributed £7.7bn to the £48.7bn fall in UK PLC’s annual profits, according to The Share Centre Profit Watch UK.
Helal Miah, investment research analyst at The Share Centre, explains: “The weakness in 2012 reflects a perfect storm for UK-listed firms as the three largest profit-producing industries all suffered at the same time; a rather unusual coincidence of events.”
However, this is not deterring some investors. Just more than five years after the sector was deemed ‘uninvestable’ investors are, albeit with caution, returning to the financials sector.
A June speech by the chancellor contained information concerning the government’s stake in both Lloyds Banking Group and the Royal Bank of Scotland Group, suggesting that sale of its 39 per cent stake in the former could take place as early as the autumn.
This prompted managers to take a closer look at the stock. Jupiter’s UK Growth managers Ian McVeigh and Steve Davies, M&G’s UK manager Mike Felton and star manager Richard Buxton, who recently joined Old Mutual Global Investors, have all told Investment Adviser recently that the banks are appealing.
In a recent issue Mr Felton claimed that both Lloyds and RBS have performed particularly well within his growth fund, while the Jupiter managers have owned both banks for a number of years.
Data from FE Analytics of financial funds shows that in five years to July 19 – a period that includes the financial crisis – just four financials funds managed to outperform both the FTSE All-World Financials and MSCI AC Financials indices (two of the most common indices used as benchmarks for financials funds).
The best performing, the data shows, is the $321m (£209.3m) Sanlam Global Financials fund, managed by Kokkie Kooyman. In the period, the fund returned 80.26 per cent, compared with a FTSE All-World Financials index return of 37.58 per cent and an MSCI AC World Financials index return of 31.56 per cent.
The other three funds, in order of performance, are Jupiter Global Financials (49.39 per cent), FF Global Financial Services (46.77 per cent) and Jupiter Financial Opportunities (43.85 per cent).
Based on data for the first half of this year, the financials fund that is shooting the lights out so far comes from Scottish Widows Investment Partnership (Swip). The best ideas fund, managed by Swip’s global equity team, has returned 15.81 per cent in the past six months, compared with a FTSE All-World Financials index return of 12.9 per cent and an MSCI AC World Financials index return of 12.18 per cent.
These funds, however, are not for the faint-hearted. Focusing on such a niche area of the market leaves these funds, and the investors within them, open to increased volatility. Proceed with caution, but for those with the stomach for risk, good returns could be made.
THE PICKS
Swip Financial fund
The first half of 2013 has seen this fund storm ahead when compared with other financials funds. The best ideas approach, which sees it invest in banks, insurance companies, real estate firms and specialist finance companies, has certainly contributed to the outperformance with the fund’s top-10 holdings containing names such as Citigroup, American Express and Wells Fargo. If its recent performance continues, good things could come from an investment in this fund.
Sanlam Global Financials fund
Managed by Kokkie Kooyman, this fund tops the list of financials funds on five-year performance data. Returning 80.26 per cent, the fund has almost doubled the average return of 36.55 per cent from its financials funds peers.
EDITOR’S PICK
Polar Capital Financial Income fund
Nick Brind has managed this fund since launch in October 2009, offering investors a combination of income and capital growth through both equity and fixed-income assets. Since inception, the fund has returned more than five times its Stoxx Financial index benchmark at 40.81 per cent, compared with the index loss of 13.63 per cent. The firm has since launched two other financials-focused funds – Financial Opportunities and the closed-end Financials Trust – reaffirming the company’s strong view on the future of this sector.
