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Argonaut's Norris still shunning 'zombie' banks
by Matthew Goodburn on Nov 08, 2012 at 11:39
IM Argonaut European Alpha manager Barry Norris has seen his pronounced underweight in European banks cause short-term underperformance over the past six months, but he is sticking with his belief that the sector is too volatile to back.
Banks are 'zombie equity'
The fund also has no exposure to peripheral Europe and this region, along with many financials, has been among the best performers following liquidity injections and positive noises from the European Central Bank in recent weeks.
But Norris remains happy to avoid banks, which he describes as ‘zombie equity’, and is maintaining his large overweight to the region’s strongest economies and also to a handful of quality growth stocks in core Europe from the insurance, autos and retail sectors.
He tells Citywire Selection: ‘We have had a disappointing six months on a relative basis but we still view banks and southern European equity as zombie equity. It is very hard to make a case for banks as we believe they have not made enough provisions for bad debt and unless there is higher growth, their provisions will have to remain high.
‘But we call them zombies because they are not totally dead and every couple of months they come back to bite you in the backside.’
Norris has held no banks for about four years and now thinks they are not even trading on cheap valuations.
‘It is very important to stick with our process. We look for stocks with superior earnings momentum and we are happy to pay up for these higher quality companies.’
Recent examples include German auto group Volkswagen and reinsurer Hanover Re, and French high-end commercial property firm Unibail.
Norris started adding Volkswagen three months ago and it is now 4% of the fund, initially attracted by the higher margins being gleaned from the Porsche and Audi brands it now owns.
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