Contrarian Kerr backs financials

New Star US fund manager Greg Kerr is taking a contrarian stance and backing financials in his £12 million New Star North American fund during the current volatility.

Kerr took on the fund (New Star North American A) in January 2006 and initially took a bearish stance on financials, while remaining overweight in tech stocks.

He said: ‘I thought the fundamentals would deteriorate, but unfortunately this has not translated into outperformance in the downturn. We bought into financials two months too early.’

However, Kerr has used the recent volatility to top up financial exposure, adding to positions in Bear Stearns, mortgage lender Indymac Bank, Countrywide Financial Corporation and online broker E-Trade.

He said: ‘Indymac’s share price was knocked early on. We felt it was unfairly priced because it had reacted early to credit issues and its lending is less extreme than Northern Rock. By the end of the year it will not rely on any wholesale funding.’

Kerr initially bought the stock at $27 (£13) and sold at $33, making a 20% gain, before adding to the stake when it fell back to $18 dollars.

He said: ‘This is a valuation-driven contarian call. I think its book value is sound and the business has been transformed.’