Crux’s Milne trusts Nordic banks to weather headwinds

Factors including the introduction of negative interest rates in a number of economies, the eurozone and Sweden among them, have presented a headwind for banks this year.

More recently, Italian banks in particular have come under pressure, though last week saw a slight rebound in share prices as larger firms sought to create a rescue fund for peers struggling under the weight of bad loans.

Mr Milne, however, believes Nordic banks, which weathered their own financial crisis in the early 1990s, are a safer bet than many of their European rivals.

As a result he has included Nordea, Swedbank and Handelsbanken in the £20m Crux European fund, which launched in November 2015.

“We always like companies that pay dividends,” he said. “Some of these dividends come from a sector we normally shy away from – banks. These are Nordic banks. They had their version of the Lehman crisis in the 1990s. They have been through what people are struggling with [now]. They are always very well capitalised.”

He noted that, during the financial crisis, the sector had avoided catastrophe despite “making some losses”.

“None of them embarrassed the government,” he said. “There were no share prices that looked like RBS or Lloyds, or most Italian, and a lot of Spanish, banks.”

Mr Milne added that his holdings in the sector, while offering a payout of “just over 6 per cent”, focused on sustainable lending. “European banks are after growth, but these guys are after resilient lending,” he explained.

Elsewhere in the fund, which had a 12 per cent weighting to banks at the end of January, Mr Milne and co-manager Richard Pease have been seeking businesses with attributes such as structural growth, access to emerging markets and the ability to make bolt-on acquisitions.

One holding that ticks these boxes is testing company SGS.

Mr Milne noted the firm – which could, for example, test whether a paint contains lead – is benefiting from growth in the testing business, although its share price has suffered recently.

“SGS has what looks like a high exposure to oil and gas so the share price has come back,” he said. “But most of that testing is petrol and oil that’s being traded – it’s not at the extraction stage so it hasn’t affected sales as much [as expected].”

Other favoured holdings in the fund, which has a 60 per cent overlap with the £1.1bn European Special Situations vehicle, include names that Mr Milne believes may have been overlooked by analysts.

Among these are consumer goods conglomerate Henkel, facilities management businesses such as Compass and ISS, and hygiene products provider SCA.

Speaking about the latter, Mr Milne said: “That’s one analysts will eventually notice. It’s not contrarian, it’s just one where we get to grips with the business and it’s better than perceived.”

Since launch, the European fund has returned 6.7 per cent, according to FE Analytics, compared with 3 per cent from peer group the Investment Association Europe ex-UK sector.