European banks back on managers’ radars

Fund managers are increasing their exposure to European banks as the sector continues to boost capital reserves in accordance with new rules.

BlackRock’s Alice Gaskell has upped her exposure to financials in her £145.4m BlackRock Continental European Income fund, while Bryn Jones has also bought heavily into European banks in both his Ethical Bond and Strategic Bond funds.

Ms Gaskell said: “We have increased our exposure to financials, especially banks, where we have historically had very little money, but we are starting to find banks now with adequate capital and with high quality management.”

Article continues after advert

The manager said she had built up a position in Nordea, the Sweden-based bank that operates mainly in Northern Europe, but said she was still not yet prepared to invest in most of the banks in peripheral European countries.

She has also added to insurance stocks in the fund, boosting the financials exposure in an attempt at “capturing some of the recovery in the eurozone”.

Meanwhile, Mr Jones has adopted an overweight position in financials in his funds, saying such companies were “are increasing capital, recovering earnings, improving leverage and paying dividends”.

“Forget the noise – financials are improving their balance sheets and strengthening their earnings,” he said.

The £116.8m Ethical Bond fund’s top holding at the end of June was 3.8 per cent in the Euro Investment Bank, the EU’s fund for investment in projects across the union.

Mr Jones said he had also added holdings in Santander and Credit Agricole, which he described as “massively undervalued”.

In recent weeks, data has indicated that the problems in the eurozone economies may be easing and that the area may soon return to growth, with economic growth figures and purchasing managers’ index readings indicating improvement across the region.

Pictet’s Daniele Scilingo, who runs the firm’s €194m European Equity Selection fund, said he also had a high weighting towards financials, although he emphasised this was still lower than the fund’s benchmark.

He cited French banking giant BNP Paribas as an example of a financial firm which, by his calculations, still had “30-40 per cent upside” even when factoring a “worst case scenario”.

The manager also holds Dutch bank ING, Russian firm Sberbank and insurance giant Munich Re.

So far this year financial companies have led European stock gains according to the MSCI Europe index.

The broad index has gained 16.4 per cent since the start of the year but, within that, financials have gained 20.6 per cent.

However, the narrower selection of pure banking stocks have performed roughly in line with the index, gaining 16.8 per cent.