By Daniel Lanyon on Friday 12 May 2017
A long-term backer of the bank dis-intermediation boom, Neil Woodford has bought back into the ‘traditional banking ‘ sector via the Lloyds Banking G
A long-term backer of the bank dis-intermediation boom, Neil Woodford has bought back into the ‘traditional banking ‘ sector via the Lloyds Banking Group.
Star fund manager Neil Woodford, who runs the £10.1bn Woodford Equity Income fund, has been bearish on banks since 2014 when he sold a chunky stake in HSBC after little more than a year of owning it. Before this Woodford had not invested in a bank since 2002.
He has been a backer of financial disruption for several years, however, expressed by an unquoted stake in P2P lender Ratesetter as well as exposure to funds such as P2P Global Investments and VPC Speciality Lending as well Honeycomb.
Now the manager has put just over £200m into Lloyds in the past month, reflecting just over 2 per cent of his fund. Even including his other stake in digital bank Atom, Woodford’s fintech portion of his portfolio totals less than Lloyds.
Lloyds – more specifically its shareholders - was one of the major casualties of the Financial Crisis and has seen its share price plummet since although it has made some recovery since its 2009 lows.
Woodford says, according to a spokesman, that banks should be viewed as “warrants on economic growth” and that in a modern ‘fiat money’ system; banks play a pivotal role in the economy through the creation of credit.
“When a banking system is functioning normally, credit creation fuels economic growth and the central bank monitors and influences the quantity of credit being created by adjusting base interest rates, as a tool for managing the economic cycle.”
“In a benign economic environment, banks therefore offer leveraged exposure to economic growth.”
Despite the UK banking system not functioning normally for much of the post-financial crisis period, he continues, because it has been in a prolonged process of rehabilitation things seem to be improving.
“Importantly, that process now appears to be largely complete in the UK, as evidenced by the recent pick-up in bank lending activity and, although the banks will likely continue to rebuild capital, the domestic banking sector looks more attractive as an investment proposition than it has in many years.”
“Specifically, we view Lloyds as a well-managed bank with a conservative approach to its balance sheet. Its valuation looks very attractive in our view, and it has the ability to pay a very healthy and growing level of dividend.”