Revealed: The Fund Managers Betting On Banks

Morningstar data reveals more than 10 funds invest in HSBC, Barclays, RBS and Lloyds in their portfolio as this week five major UK banks posted mixed 2016 results 

Karen Kwok 24 February, 2017 | 11:02AM
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This week five major UK banks revealed their 2016 results – to mixed market response. Royal Bank of Scotland (RBS) this morning reported a ninth consecutive year of losses, reporting a £7 billion annual loss. Shares in the bank fell 3% in early-morning trading.

RBS is not the biggest FTSE faller however, as Standard Chartered  (STAN) is down today 5% after disappointing results, while shares of HSBC (HSBA), Barclays (BARC) and Lloyds Banking Group (LLOY) each fell in early trading. Unlike Barclays and Lloyds, which both reported jumps in annual profits, RBS and HSBC posted disappointing earnings this week.

Yesterday, UK equity income fund manager Neil Woodford admitted that US and UK banks were looking more attractive, leading to expectation they may appear in his new Income Focus fund, due to be launched next month.

“I don’t regret selling HSBC in 2014, it has lost a lot and then gained a lot since,” he said. “But banks look more investable now than they have been.”

Who Owns the Banks?

Data compiled by Morningstar Direct and X-ray tool revealed that the Gold Rated Investec UK Special Situations fund is the only fund which has the four UK high-street banks in its top 10 holdings. The fund has HSBC as the top holding in its portfolio, a 7.2% weighting of the fund. This fund also has 6.6% invested in Barclays, 4.5% invested in Royal Bank of Scotland and 4.5% in Lloyds. It has 53 stock holdings in total, of which 86.5% of them are listed in the UK.

The large weighting of HSBC in Investec UK Special Situations’ portfolio is in line with the bank’s 7.3% weighting in the FTSE 100 Index. However Investec UK Special Situations has an overweight position in the other banks as Barclays only makes up 2.15 of the index, 2.1% of Lloyds 2.2% and 0.4% of Royal Bank of Scotland within the index.

Alastair Mundy, who has run the Investec UK Special Situations fund since 2002, recognises that particular companies or sectors can be out of favour for a considerable time and he uses diversification of stock and sector positions to soften the volatility that can be consequent when holding such out-of-favour positions, Morningstar fund analysts said. The fund is flat year to date and it gained 16.8% in 2016.

Analyst Simon Dorricott added that Mundy is a seasoned and talented manager who has achieved considerable success across a variety of market conditions. Mundy uses a “well-tested contrarian process” where he seeks to invest in companies whose share prices are down by at least 50% relative to the market.

HSBC in Top 10 Holdings of 15 Top Rated Funds

Despite the lower-than-expected earnings, and a 60% fall in profits in the fourth quarter of 2016, HSBC remains a popular stock among top rated UK-domiciled fund managers.

As well as Investec UK Special Situations, there are 14 funds rated by Morningstar analysts which hold HSBC in their portfolio. Twelve positively rated funds hold Barclays and 13 have Lloyds in their portfolios. Stephen Ellis, director of financial services equity research with Morningstar said HSBC remains one of the most exposed large global banks to changes in interest rates, and is set to significantly benefit as rates rise.

The Bronze Rated Majedie UK Equity fund has 7.2% of its portfolio HSBC, 4% in Barclays and 2.2% in Royal Bank of Scotland. The fund gains 1.9% year to date and rallied 20.4% in 2016. The consistency of returns across different market environments is impressive, particularly as this has been achieved with lower volatility, said Simon Dorricott, Morningstar fund analyst. The fund has outperformed the FTSE All Share Index in almost every year since launch, except in 2010 and 2015.

The Silver Rated JOHCM UK equity income invests 6.8% of its portfolio in HSBC, 4.2% in Barclays and 4.5% in Lloyds. The fund gains 1.1% year to date and rallied 16.7% in 2016. JOHCM UK Equity Income fund benefits from a long-established and successful management partnership that has adhered to the same disciplined approach for well over a decade, said Peter Brunt, Morningstar senior fund analyst. Co-managers Clive Beagles and James Lowen have managed this fund since launch.

The pair uses a contrarian approach in implementing a disciplined equity-income style that focuses on stocks with an above-market dividend yield and reasonable growth prospects, said Brunt. Fund managers have moved extensively into banks since 2015, Brunt added.

Other funds which hold HSBC in their portfolios are Bronze Rated Standard Life UK Equity High Income fund, Bronze Rated Schroder Income , Silver Rated Schroder Recovery, Silver Rated Old Mutual UK Alpha, Silver Rated Invesco Perpetual UK Growth, Silver Rated Jupiter UK Special Situations, Bronze Rated Kames UK Equity, Silver Rated Franklin UK Equity Income, Bronze Rated BlackRock UK Income, Bronze Rated Artemis Income, Bronze Rated JP Morgan UK Dynamic and Schroder UK Equity which is holds a Neutral rating. 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
abrdn UK High Income Equity R Inc  
Artemis Global Income R Acc2.00 GBP-0.03Rating
Barclays PLC206.15 GBX-0.67Rating
BlackRock UK Income A Acc2,137.13 GBP0.62Rating
HSBC Holdings PLC687.00 GBX-0.54Rating
Invesco UK Opports (UK) (Acc)1,015.30 GBP0.86Rating
JOHCM UK Equity Income A GBP Acc5.11 GBP0.70Rating
Jupiter UK Special Situations L Inc225.24 GBP0.95Rating
Lloyds Banking Group PLC55.54 GBX-0.25Rating
NatWest Group PLC310.00 GBX-1.81Rating
Ninety One UK Special Situations A Acc1,834.63 GBP-0.25Rating
Schroder Income Acc126.40 GBP0.72Rating
Schroder Recovery A Acc288.30 GBP0.77Rating
Standard Chartered PLC728.40 GBX-0.46Rating

About Author

Karen Kwok

Karen Kwok  is a Reporter for

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