Artemis’ Ed Legget has added Lloyds to his UK Select portfolio, making him the second prominent fund manager in a month to back the once troubled banking group.
Mr Legget, who runs the £570m fund with deputy manager Ambrose Faulks, said he had initiated a 2 per cent position in the bank in the same month that Neil Woodford bought into the lender.
Mr Legget said his own switch stemmed in part from a shift out of Barclays – he has halved this position because of concerns about the fate of its South African subsidiary – but he has also grown more confident on Lloyds’ fundamentals.
He said: “Lloyds’ net interest margin looks set to remain elevated as it is one of the few banks that still has a significant deposit book to reprice downwards. It is likely to have an overall yield of close to 8 per cent, as capital is building rapidly and with little growth in the loan book it has no use for it.”
The purchase came shortly before the government completed the sale of its stake in the bank. Taxpayers took a 43 per cent stake in the midst of the financial crisis in 2009, but the government’s drip-feeding of shares into the market concluded on May 13 with its final sale.
Mr Woodford recently announced he had bought the bank as part of a broader shake-up of his £10.2bn Equity Income vehicle that saw GlaxoSmithKline dropped in favour of domestic cyclicals.
“We view Lloyds as a well-managed bank with a conservative approach to its balance sheet,” the manager stated in an update. “Its valuation looks very attractive in our view, and it has the ability to pay a very healthy and growing level of dividend.”
Mr Legget has also made several changes to his portfolio in recent weeks, although these are not all in favour of cyclical companies. He has ditched much of his exposure to Anglo American which, like Barclays, he said looked challenged by geopolitical turmoil in South Africa.
The manager has also dropped WPP, believing it could be hit by consumer groups cutting advertising spending. The manager added that investors were “firmly in the glass-half-full camp”, with valuations looking particularly stretched for some small and mid-cap growth stocks. This, he suggested, could cause difficulties in future.
He said: “We can still find a lot of names that look good value to us in absolute terms. But the list is shrinking as some of the more cyclical parts of the market – industrials for example – have seen such a rapid expansion in multiples over the last six months that they appear to have priced in much of the likely earnings recovery.”
He has added to some cyclicals, such as brickmaker Forterra, and airline Ryanair, which he expected to benefit from downsizing by peers.
Last year Mr Legget apologised to investors after he incorrectly called the EU referendum result, a prediction that hurt the fund’s returns versus markets.