Fidelity's Shah cuts RBS stake

Fidelity's Sanjeev Shah has reduced his holding in part-nationalised lender Royal Bank of Scotland (RBS) following a tough year for financials in 2011.

The manager of Fidelity's £2.2bn fund - previously run by renowned investor Anthony Bolton - has favoured unloved banks RBS and Lloyds since the financial crisis, with mixed results.

However, Shah said he trimmed down his holding in the former during 2011 because it continues to face extensive risks.

From a position of around 2.5% last April, Shah said he now had under 1% of the fund in RBS.

"It screens as attractively as Lloyds but it has a higher risk profile," Shah said.

Shah said the bank may have to wind up its US operations over time, as well as wind down its investment banking arm.

"I have a reduced position given the risk/reward profile," he said. RBS' share price fell by around 50% last year as fears over its exposure to sovereign debt came to the fore."

Meanwhile Lloyds was also among the worst performing shares in the UK, falling from 66p to around 28p by year end.

Shah's fund has endured a number of tough periods of performance since his takeover of the portfolio from Bolton in 2008.

In 2011 it lost investors 14.4%, compared to the UK All Companies sector average loss of 7.4%. The benchmark FTSE All Share was down around 9% during the period.

Assets under management have also fallen by £1bn to £2.2bn during the four year period.

Shah said the fund had underperformed "quite dramatically" since late 2009, with the overweight in banks hurting performance.

However, his conviction in Lloyds and HSBC - his other big position in the banking sector - remains strong.

He has a base case scenario which sees Lloyds shares hitting 60p in 2014 - more than double the current value of 27p.

"What Lloyds' price is pencilling in now is a real Armaggeddon scenario but we think its earnings potential is under-appreciated," he said.

Lloyds has had further setbacks after chief executive Antonio Horta-Osorio went on sick leave with stress last year.

He has now returned, and Shah pledged his support for the management team at the bank.

"We were very involved, and we have been supportive of him coming back," Shah said.