SVM’s Hugh Cuthbert has more than doubled his exposure to banks in his Continental European fund this year as the sector has proved resilient in the face of regulatory threats.
Only seven out of 91 EU banks failed July’s stress tests, while Basel III funding requirements were diluted, leading the manager to increase his holdings in banks from 9.2% to 19.7%.
However, he would consider paring this back if populist anti-bank political rhetoric translates into action, he says.
The manager has cash reserves of more than 10%, and has trimmed individual positions in the fund to finance the move.
Since July, Cuthbert has opened positions in UBS (2.3%) and Société Générale (2.4%), and has increased holdings in ING and DnB NOR to 2.6% and 3.5% respectively since the stress tests.
Cuthbert also owns Finland’s Sampo Oyj, which, he says, is one of the most stable financial companies in Europe.
The manager is critical of politicians’ failure to differentiate between beleaguered European financial institutions and Skandinavian banks, “which sailed through the crisis without issues”.
Cuthbert owns no banks in Greece, Spain or Portugal, which have at times been heavily sold off as proxies for their countries’ debt woes.
He says: “Europe has been dragged down and overpenalised by the woes of the periphery, yet its core is fine. The euro and rates are down, but balance sheets are strong.
“The risk premium has increased in Europe, and very clearly it should have for Greece, Portugal and Spain, but not necessarily for Germany, France and Nordic countries.”
At 23%, Cuthbert’s portfolio is 4% overweight a broad selection of consumer stocks versus its FTSE World Europe ex UK benchmark.
“In many parts of Europe you did not see the asset price bubble the UK and US had, and you could be more concerned Europe’s consumer does not speed up, rather than slowing down, and I argue a lower consumption rate is already priced into stocks,” Cuthbert says.
