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Stephen Bailey, Macro-Thematic: The challenger banks we're backing

We believe that the beleaguered Big Four high street banks – Barclays, Lloyds, HSBC and Royal Bank of Scotland – remain uninvestable in the current climate. We think these banks will still be seen as a politically convenient punch bag whatever the outcome on 7th May. In contrast, the global financial crisis created the perfect storm for ‘challenger’ banks to expand their lending into the void vacated by the incumbents. In our opinion the opportunity for expansion of the challengers remains huge and we think that any fears over their ability to take further market share (as expressed, for example, in last Thursday’s FT Lex column) are misplaced.

Regardless of the outcome of the General Election, we see political support for the expansion of challengers continuing, while macroeconomic recovery also provides a tailwind to their growth. Since we first identified the dichotomy between political support for challengers and hostility for incumbent banks in 2013, the theme has evolved significantly within our portfolios. Initially the theme was not directly investable, but over the last year there have been five IPOs of challenger banks, most recently Shawbrook Group last week – a flotation that we participated in. 

Mark Williams: What is driving the Hong Kong rally?

On its first trading day after Easter, Hong Kong’s Hang Seng Index rose 3.8% yesterday on record volumes (see chart 1 below), surpassing its previous turnover peak achieved in 2007. The Hang Seng China Enterprises Index (the HSCEI index of H-shares in Hong Kong-listed Chinese companies) was even stronger, rising 5.8% and taking the year-to-date return to 11.9%. This morning, the Hang Seng and HSCEI have risen a further 2.7% and 2.6% respectively. This has caused many market commentators to loudly cry “bubble”, but we believe the rally in Hong Kong-listed Chinese companies may still have some time to run. Since the initiation of the Shanghai-HK stock connect in November 2014, many have focused on the increased scope for overseas investors to invest in mainland China’s A-shares, and attempted to link this to the rising premium at which A-shares trade over their H-share counterparts (chart 2).

John Husselbee: Do fund managers still have artistic licence?

In my opening blog of this series, I raised the question of whether the process of selecting funds and fund managers is more of an art or a science. This was also one of the main themes that developed during my interview (the second in this series) with Richard Buxton, Head of UK Equities at Old Mutual Global Investors and manager of the UK Alpha Fund. In the same way that I view the selection of a fund manager as a balance between the quantitative and the qualitative, Richard believes that managing investments requires a knowledge of not only statistical financial analysis but also investor sentiment, the ‘mood of the market’ and ultimately an ability to judge people – not least the management teams of investee companies.

In explaining his approach to me, Richard quotes Edward C. Johnson II, who founded Fidelity in 1946 and ran it through to the 1970s when he handed over to his son: “I know this is no science. It is an art. Now we have computers and all sorts of statistics, but the market is still the same and understanding the market is still no easier.”

John Husselbee: Opportunities and dangers of investing for income

Generally speaking, we see more investment opportunities in the equity market than the overvalued bond market, but those seeking income are still likely to have to be very selective in their choice of investments and possibly make use of alternative asset classes.

Fixed interest markets look incredibly expensive today and, while some equity markets still offer attractive dividend yields, after six years of a bull market it is fair to say that valuations can no longer be described as a bargain.

Anthony Cross: Economic Advantage characteristics rewarded in Q1

The first quarter of 2015 has seen plenty of short term ‘noise’ in the UK stockmarket in the form of macroeconomic concerns over the implications of the impending UK election and the impact of commodity price movements on inflation and monetary policy. In this context, it is pleasing to note some clear examples in which the long-term attractions of companies in the Special Situations Fund have shone through against a backdrop of uncertainty.

We are committed to investing in companies for the long term, and being prepared to ‘ride out’ any headwinds, especially as we find that investors often overreact in the short term and underestimate the protection that Economic Advantage assets can provide against competition, macro shocks or cyclicality

Disclaimer

Any opinions expressed should not be construed as advice for investment in any [product or] security mentioned or which may form the underlying content of any topics discussed in this blog.  The information and opinions provided in this blog take no account of the investors’ individual circumstances and should not be taken as specific advice on the merits of any investment decision.   Any opinions or information provided has been based on sources we believe to be reliable at the time of this blog’s preparation: no representation or warranty, express or implied, is made as to the accuracy, reliability or completeness of such information.  Neither Liontrust, nor any of its partners, employees, representatives or agents accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of our research or its contents.

Liontrust, its partners and/or employees may have had, have or will have positions in the securities (or related financial instruments) which are those referred to, or those underlying the content discussed in this blog.

Any individual who chooses to invest in any securities should do so with caution. Investing in securities is speculative and carries a high degree of risk; you may lose some or all of the money that is invested.  Always research your own investments and consult with a regulated investment advisor or licensed stock broker before investing.

Shares in companies referred to may be relatively illiquid and hard to trade, therefore riskier than other investments and there could be a large bid/offer spread, so if you need to sell soon after you’ve bought, you might get less back than you paid. This can make them riskier than other investments.