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Lloyds leads the way in global bank revival

John Yakas, co manager of Polar Capital Global Financials investment trust, explains why banks are coming back in favour.

Lloyds leads the way in global bank revival

Shares in Lloyds Banking Group have soared 64% this year as the government has cut the taxpayers' stake and the bank's chief executive Antonio Horta-Osorio has signalled his readiness to start paying dividends.

John Yakas, co manager of the Polar Capital Global Financials (PCFT) investment trust, which raised £150 million at its launch in July, says this is an increasingly typical story as banks and the economy recover from the financial crisis.

In this video interview Yakas explains how banks' capital position has improved. ‘For the first time banks are beginning to pay back dividends so it’s that combination of potential income coming through plus attractive valuations and, I suppose, ultimately the financials are a geared play on the economy and if people are feeling a little bit more comfortable about the economy that’s a sector they will invest in.’

Lloyds (LLOY.L), a top 20 holding for the trust, has benefited from the buoyant housing market. However, on valuation grounds, Yakas prefers Barclays (BARC.L), a top 10 holding whose volatile investment banking earnings have undermined the share price. 'You're paid a significant discount to own Barclays,' he said.

Interviewed in September, Yakas explained he was looking for opportunities to increase his holdings in emerging market banks. ‘People forget how attractive financial services is in a lot of these markets,’ he told Sarah Miloudi.

Yakas also runs the Polar Capital Financial Opportunities and Polar Capital Asian Financials funds. He manages PCFT with Nick Brind, who also looks after the Polar Capital Financials Income fund.

PCFT has a fixed life and will expire in May 2020. It invests 10% in financial bonds and the rest in shares. Investors pay an annual management charge of 0.85% and a performance fee of 10% of any returns greater than 1.2% above the MSCI World Financials index.

Since launch PCFT has issued around £10 million in new shares. The share price has risen from 100p to 105.5p, a premium of 3.5% more than the net asset value of its investments. At the current price the shares yield nearly 3%. The trust pays two dividends a year.

2 comments so far. Why not have your say?

Ian Lees

Dec 05, 2013 at 06:36

IF this headline is true. . .it is a pity that LloydsTSB has not yet paid out the compensation for its part in selling PPI insurance - even after being " remonded " by the FCA - the toothless . . . regulator . . .Obviously LloydsTSB are still negotiating their " Fine" and subsequent . . . . compensation. . . . .

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Briesmith

Dec 08, 2013 at 10:07

John Yakas and co are applying their methods to bank valuations; the same methods they use for all their valuations. However, Lloyds, RBS and probably to an extent, Barclays are at abnormal points in their valuation so the standard methods simply don't apply.

This will be demonstrated very clearly as soon as Lloyds announces its first dividend. The share price will leap far beyond the value of the intended dividend payout.

Mr Yakas tries to convey the idea that what he does is rational and rule based when it isn't. There is nothing more irrational than a market which is simply a rumour and whisper based "shop" driven, in the main, not by intellect and analysis but by fear.

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