Fund managers look at bank stocks again – but they tread carefully

Some fund managers are looking at financial stocks again after the effect of the European Central Bank’s cheap loan program partly offset the sovereign crisis’ effect on valuations, and in America much bad news is already reflected in the price of banks.

The more positive managers also point to improving American economic data, and greater clarity about upcoming regulatory changes affecting the sector there.

But the manager caution that diversified exposure to the sector is still advisable.

In Europe fund managers are generally far more cautious, or unconvinced.

Cedric de Fonclare, manager of Jupiter’s European Special Situations and European Opportunities funds, said recently: “I am watching the market go up, but I am not buying the banks. For two years brokers have been pushing the idea that banks are cheap, but they just keep getting cheaper.

“The business model is compromised, banks will not get growth and you can see just how hard governments are trying to regulate them.”

Across the Atlantic Ocean, though, the manager of T. Rowe Price’s Financial Services fund Eric Veiel, said: “Years of underperformance, negative sentiment toward the sector, attractive valuations versus historic levels, and improving economic data have the potential to create a positive outcome for financial stocks in 2012.”

Valuations as measured by price to book ratios are “as low as they have been in the past decade, except for the very worst points of 2008/2009 [and] a lot of bad news may be already baked into stock prices,” he said.

The global sector’s ratio was about 0.85 times in December – far higher than levels of around 0.5 times in early 2009, but still far below about 2.5 times, from late 2001.



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