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Aberdeen’s Whitley: banks are too complex to call
'Every time I look at banks, I try and work out how to make money, but they are fiercely complicated financial beasts, and I prefer to shy away from things I don’t understand,’ says Aberdeen manager.
Jeremy Whitley, Citywire A-rated manager of the Aberdeen UK Equity Income fund, is steering clear of financials and says even if the sector rallies on the back of positive news from the eurozone, he's happy to underperform in that situation.
Aberdeen’s European equity head expects the economic outlook to remain weak for the next five to seven years, and against this backdrop he says it has become even more important to back companies that have pricing power and solid balance sheets.
Five tough years
‘The coalition has a five-year period to set policies in motion, but life will remain tough. We don’t see many tailwinds from economic growth because austerity is difficult,’ he said.
‘There will be pockets of a natural release where Europeans come together with all their summits and markets have a tremendous relief rally. This will feed through to the financial sector which will rally strongly. We will undoubtedly underperform and we are happy to do so.
‘Every time I look at banks, I try and work out how to make money, but they are fiercely complicated financial beasts, and I prefer to shy away from things I don’t understand.’
Whitley's top picks
He said top stock picks Unilever (ULVR.L), British American Tobacco (BATS.L) and Pearson (PSON.L) have helped to drive a 52.4% return over the three years to the end of July. This compares with a 37.7% rise by the FTSE All Share, according to Lipper. The fund is yielding 4.5%.
‘Owning the likes of Unilever and Pearson has been quite good, and not owning Rio Tinto (RIO.L), Anglo American (AAL.L), Xstrata (XTA.L) and Barclays (BARC.L) has also helped,’ he said, although he acknowledges not owning Diageo (DGE.L) had a slight drag on performance.
‘Close Brothers’ results, which came out recently, were OK,’ he says. ‘They still had some difficulties on the asset management side, but their banking side is doing fantastically well. It is a bit like Provident Financial, which people castigated over the last few years but has done really well, particularly the bank.’
The manager highlights Experian (EXPN.L) as a key contributor to performance and is also positive on the team’s decision to introduce international holdings into the portfolio, including Franco-Dutch property company Unibail-Rodamco and ENI.
He said this represents an area the team is currently reviewing as a means to get exposure to areas that aren’t currently easily assessible in the UK, such as industrial gas and elevator companies. He added that technology companies were also on the radar.
To increase diversification and gain access to different sectors, the team introduced overseas holdings earlier this month, taking advantage of IMA UK Equity Income sector rules that allow managers to allocate up to 20% of their portfolios overseas.
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- Unilever PLC (ULVR.L)
- British American Tobacco PLC (BATS.L)
- Pearson PLC (PSON.L)
- Rio Tinto PLC (RIO.L)
- Anglo American PLC (AAL.L)
- Xstrata PLC (XTA.L)
- Barclays PLC (BARC.L)
- Diageo PLC (DGE.L)
- Provident Financial PLC (PFG.L)
- Close Brothers Group PLC (CBRO.L)
- Experian PLC (EXPN.L)
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