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Global value star piles into ‘political punch bag’ RBS

Global value star piles into ‘political punch bag’ RBS

Value equity specialist Daniel O’Keefe has bought into Royal Bank of Scotland and criticised the populist attacks on the bank since the 2008 financial crisis.

The Citywire AAA-rated manager has opened, what he called, a ‘meaningful’ position in RBS in his $600 million Artisan Global Value fund.

According to Lipper data, RBS currently amounts to 2.43% of the fund, which O’Keefe co-runs with fellow Citywire AAA-rated manager David Samra.

Speaking to Citywire Global, O’Keefe said: ‘Since the rescue there have been two significant diverging trends. The first trend is that RBS has served as a political punching bag.’

‘Populist politicians and the country’s central bankers have not been shy about imposing fines, regulatory reviews, and even partaking in very public spats with the management team.’

‘The second trend is that management has done a solid job of reducing asset risk, reducing expenses and maintaining the core banking franchise.’

O’Keefe said the bank had made ‘tremendous progress’ since the financial crisis and restored a robust capital position, which was being overlooked by many investors.

‘We believe our entry price of about 0.70 times book reflects near-term concerns about government intervention in the business, but does not account for its attractive market position and earnings power over the long term.’

The comments were made prior to RBS's online banking and debit card payments system crashing on December 2

The fund currently has a significant overweight to the financials sector. It holds 31.5% of exposure here compared to 21.6% in the company’s benchmark, the MSCI All Country World Index.

Fully valued

The largest single position is in computer technology group Oracle. O’Keefe said it has managed to hone a dominant position in both the software and middleware markets.

‘It is highly profitable and cash generative. It also has a good acquisition track record and net cash on the balance sheet.’

‘The share price has been relatively flat this year and we have taken selective opportunities to increase our investment in what we think is a well-managed, well-financed, extraordinarily cheap business.’

Looking at the market as a whole, O’Keefe said value stocks were currently fully priced and he was finding little in the way of attractive additions.

‘We feel that stocks are for the most part fairly valued. We continue to find more opportunities to sell than to reinvest in new undervalued businesses. We are actively researching new prospects, but we are patient and will not compromise our valuation discipline.’

The Artisan Global Value fund has returned 49.8% since its launch in March 2011. This compares to a rise of 36.8% by its Citywire benchmark, the LCI S&P 500/MSCI World (50:50), over the same 31 month period.

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