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Beyond the big banks: the offbeat bets managers are backing

Citywire Global canvasses leading equity investors to find some of the untapped and unloved financials topping their agendas.

Going beyond the mainstream names

Equity managers are increasingly bullish on financials, as these stocks are benefitting from a low interest rate environment and banks cleaning up their balance sheets following the financial crisis, as well as ahead of the ECB’s forthcoming asset quality review.

But, apart from the well-known giants, which are the most unconventional and hidden banks fund managers are backing around the world?

Citywire Global has canvassed some specialists in different regions of the globe in order to discover which companies they are betting on.

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Going beyond the mainstream names

Equity managers are increasingly bullish on financials, as these stocks are benefitting from a low interest rate environment and banks cleaning up their balance sheets following the financial crisis, as well as ahead of the ECB’s forthcoming asset quality review.

But, apart from the well-known giants, which are the most unconventional and hidden banks fund managers are backing around the world?

Citywire Global has canvassed some specialists in different regions of the globe in order to discover which companies they are betting on.

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DNB, Scandinavia

Alliance Bernstein’s Nicholas Davidson is negative on European banks but, against this backdrop, has taken solace in Scandinavia, where he favours Nordic bank DNB.

Davidson said: ‘It is a classic turnaround value story. A new management team is making significant internal structural changes to the company that in our view will enable shareholders to secure the benefits of its strong retail franchise in Denmark,’ he said.

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Banco Sabadell, Spain

While core Europe may not be on his radar, Davidson is also buying back into the periphery. He has upped exposure Spanish banking sector but remains structurally underweight the country.

’Recent litigation in Spain’s Supreme Court poses some increased risks to Spanish mortgage banks. But our research suggests that Sabadell, a recent addition to our portfolios, is less exposed than several of its peers,’ he said.

’Sabadell also benefits from potential to increase its net interest income. As a result, it provides among the more attractively valued banking exposures in the Eurozone periphery today.’

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St James’ Place, UK

Citywire A-rated manager Stuart Mitchell from S. W. Mitchell Capital favours Italian and Spanish banks, but he has also spotted some interesting opportunities in the UK, like wealth management company St James’ Place.

’St James’ Place has performed extraordinarily well in the UK’s post-RDR landscape. By concentrating on a high standard of tailored client service and establishing quality networks of partners, they have hit upon a winning advice model in what has been a challenging period of regulatory change,’ he said.

The manager also thinks that the future challenge for the company will be growing the partner networks to cope with their fast-growing book of business.

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Paragon Group of Companies, UK

Staying in the same broad market, Stuart Mitchell also likes the Paragon Group of Companies, a leading specialist lender of buy-to-let mortgages to landlords and residential property investors in the UK.

’Paragon differentiate themselves by undertaking a superior level of risk assessment. They have also performed far better than competitors through the cycle. The recovery in the UK housing market nationally will be supportive to future growth,’ he said.

According to Mitchell, the improved liquidity in capital markets will allow Paragon to build their loan book as the demand for buy-to-lets increases.

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Investec, UK

Henderson’ AA-rated manager Ben Lofthouse holds large positions in financials, mainly through European insurers and well-capitalised retail banks.

One of the most interesting names he favours is Investec, a specialised bank that operates mostly in South Africa and the UK.

’We bought it last year and it has started to re-rate but we think that there is still upside. From here you have a bank that is well capitalised but which has historically run with high levels of capital, so doesn't have to reinvent its business model in the same way that some of the larger banks do,’ he said.

’Investec is trading slightly above book value, with a return on equity that is already 10% and should move higher in the coming years as the non-core operations drop away. Moreover, despite South Africa is currently out of favour, its banking market is not mature and has the potential to grow longer term.’

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Bank of Yokohama, Japan

JO Hambro Japan expert Ruth Nash, who is Citywire AA-rated, is overweight financials, although she stays away from the country’s big banks and prefers some regional ones, like Bank of Yokohama.

’Bank of Yohohama is like a breath of fresh air. The management is entrepreneurial and trying to engage with its customers in new areas. They are also tying up with some of the brokers to sell investment products to individual customers,’ she said.

Nash thinks there are great opportunities for regional banks in a country like Japan, where people hold a big amount of money which is just sitting in cash.

‘We also hold some second line domestic brokers which will benefit from a structural shift in the Japanese equity market, with more individuals inclined to buy stocks,’ she added.

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Handelsbanken, Sweden

BBH fund manager Tim Hartch is looking to the Swedish market for a potential growth story in European banking. The global and US equity specialist said the Handelsbanken has made large in-roads into other markets.

‘Handelsbanken is emerging as one of the biggest banks in Europe and, not a lot of people realise, it has been one of the best performing banks in seven of the last 10 years,’ he said.

’It is not particularly cheap as it is about 14 times earnings at the moment but it is a very high return bank in terms of return on equity. It currently returns about 14-15%, which is rare. That is while it is growing its bricks-and-mortar business and increasing its presence across Europe. For example, it currently has 170 branches in the UK market alone.’

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Mexico and Chile banks

Bradesco’s Clayton Rodrigues likes both the Chilean and Mexican financial systems, as the countries’ banks, according to the manager, are solid and well capitalised.

’Although the pace of reforms in Mexico are a little disappointing, the financial reform will also help support the system to growth. The reform is biased towards increase credit penetration and give more flexibility to the whole banking system,’ he said.

In regards to the Chilean banking system, the manager thinks that it is very robust and will continue to grow at a steady pace.

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Related Fund Managers

Stuart Mitchell
Stuart Mitchell Average Total Return:
10.33%
143/417 in Equity - Europe Blend (Performance over 3 years)
Clayton Rodrigues
Clayton Rodrigues Average Total Return:
19.07%
1/17 in Bonds - Emerging Markets Latin America (Performance over 3 years)
Ruth Nash
Ruth Nash Average Total Return:
-12.97%
142/158 in Equity - Japan (Performance over 3 years)
Ben Lofthouse
Ben Lofthouse Average Total Return:
6.52%
120/178 in Equity - Global Equity Income (Performance over 3 years)
Nicholas Davidson
Nicholas Davidson
Tim Hartch
Tim Hartch
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