SLI’s Legget: Banks are too cheap to avoid

Standard Life Investments’ Ed Legget has bought into Barclays in both his £447m UK Equity Unconstrained and £67m UK Equity High Alpha funds to take advantage of its depressed share price.

Legget said the market sell-off, which has seen Barclays’ share price tumble more than 20% over the past two weeks, has been overdone. He has built up a 3% position in the stock in both funds.

Legget believes Barclays is well positioned to benefit from the anticipated rebound in the market.

He said banking share prices have hit such low levels it would be risky for investors not to have exposure to the space. The manager also owns Lloyds in his UK Equity Unconstrained fund.

“With the hit to corporate and consumer confidence sending the market into disarray, I have been looking for anomalies in the shares, which I think have been oversold,” said Legget.

“I have bought into Barclays because I think the upside looks significantly larger than the potential downside due to the stock being so depressed.”

He added moves by the banks to recapitalise, instigated by the authorities, would provide investors with protection they did not have during the banking crisis.

“Barclays’ capital ratio and liquidity position is a lot better than it was in 2008,” he said.

“The gearing is also much lower and it does not have the government overhang, so I think the potential upside outweighs the risks of the prospect of ring-fencing regulations being implemented next month.”

He has also upped his exposure to consumer-facing stocks by 4%, topping up holdings in Howden Joinery, Restaurant Group and Debenhams, taking exposure to the sector to 16% in UK Equity Unconstrained. 

Legget said the sector will benefit as investors perceive them as a less risky place to do business than the eurozone and the US.

“The UK consumer space is looking more interesting with the prospect of an interest rate rise looking some way off from materialising,” said Legget.

“With the UK being viewed as a safer place, the input costs on retailers will ease, and the likes of cotton and energy fuel costs will decline, which will benefit the sector.”