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Fidelity's Shah undaunted by RBS Libor threat
Fidelity Special Situations manager Sanjeev Shah is unfazed by the looming Libor fine for Royal Bank of Scotland, and is backing banks as the ‘utilities of the future’.
Shah is around 8% overweight in banks, with some 1.5% of his fund held in RBS, which he backs to benefit from long-term restructuring.
His comments come amid newspaper reports suggesting that RBS could reach a £500 million settlement with US and British authorities over alleged Libor rigging within weeks. The Wall Street Journal reported today that US authorities want RBS to plead guilty to criminal charges in addition to paying a penalty.
But Shah was upbeat on the bank’s prospects, praising chief executive Stephen Hester.
‘Hester is doing a fantastic job,’ Shah said. ‘The nature of the turnaround is more complex, given the issues they face. Also, if I were a betting man, I would guess that RBS would exit the US over the next three years and become a pure retail bank.’
Shah said that banks would help to power performance in an environment of low growth.
‘[Banks] are conservatively run, with big balance sheets, and these utility-like characteristics are not priced into banks in the slightest,’ he said.
‘We will see an anaemic growth environment for the foreseeable future, so we want consumer cyclicals, banks and retails and defensive value names,’ he said. ‘That has been a different view to most others, as they hold food, beverage, tobacco, chemicals and engineering, which have all done really well.’
Investors are increasingly drawn to financial stocks. Despite their recovery, fund managers perceive banks as the global equity market’s most undervalued sector, according to a survey conducted by Bank of America Merrill Lynch.
Others though remain sceptical. Carl Stick, manager of the Rathbone Income fund, said today: ‘Management of banks do not know where risks are so how on earth can I know where risks are on their balance sheets?’.
Shah took over the Special Situations fund from Anthony Bolton in 2008. The fund has returned 21.1% over five years, beating both the FTSE 100’s 10.6% and FTSE All Share’s 13.2% over the same timeframe.
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