UBS’s Tom Digenan has been increasing his exposure to banks despite his view that the sector will be hit by stricter regulation on capital requirements.
The manager of the £589m US Equity fund says the longer term prospects for banks outweigh any short-term negative sentiment.
“In financials, I think the political pushback is going to be pretty dramatic. The financial industry does not have a lot of political capital right now,” he says.
“I think we are going to see some requirements on capital and I think the market reaction to that is negative, but when you look at it, depositors tend to flow to where the most capital is, so it is not going to be as negative as people think.”
Digenan says he has focused on banks that have a strong retail business.
“We have a lot of J.P. Morgan, Wells Fargo and Bank of America Merrill Lynch because we basically want consumer exposure and I think the latter two give us better depositor bases and, especially in Wells Fargo, a greater degree of confidence in the execution,” he says.
The manager also carries a large overweight to the healthcare sector because he thinks the new US legislation is providing a unique investment opportunity. Holdings include Merck, Boston Scientific and Johnson & Johnson.
“When you look at it, we have had dramatic changes to our healthcare legislation, which is going to be very inflationary, but it is a benefit that this inflation is not going to be borne by the healthcare industry, but by the higher rate tax payer,” he says.
“Healthcare has been a tremendous opportunity. In the long run, it is going to trim margins, but in the short run, the volume expansion is dramatic.”
