Scott finds value in banks

Banks now look fairly valued according to F&C's Ted Scott who has increased his position in financials in the Stewardship Growth and Stewardship Income funds since a wider range of financial companies were allowed into the funds.

In September the Stewardship range of funds allowed selected financial services institutions, including some major insurers and banks, into its universe of eligible investments following a review of the sector by the Committee of Reference, the independent panel of experts that sets the ethical criteria for the funds. Previously the funds only had limited access to the financial services sector.

"After the sell-off in financials this summer, when Stewardship gained approval from the Committee of Reference to invest in certain financials, we decided to stand back from investing in banks for a short while to see if there was more negative news flow to come. Although the shares have not fallen much further they have continued to under perform a rising market and are now discounting quite a significant drop in earnings in 2008. Unless we enter a recession and market consensus shows this is unlikely, these now look fairly valued and given the attractive dividend yields it makes sense to start investing.

"There continues to be a lot of negative momentum with many investors selling out of domestic stocks and financials in favour of emerging market investments. If this trend reverses we could see a strong rally in financials," said Scott.

Scott said he initially invested in Aviva but over the last two weeks has also been taking positions in HBOS, Royal Bank of Scotland and Barclays.

"We took quite a significant position in Aviva, partly for yield, but also because it was less exposed to the economy than other financial stocks and we therefore believed it had been indiscriminately marked down. We have since also bought into banks for Stewardship and topped up our positions in the F&C Growth & Income fund where our position in financials was quite small, "concluded Scott.

The decision to widen the access to the financial services sector was made in recognition of the fact that a number of leading banks and insurers have over the years improved their social and environmental credentials and now actively seek to incorporate these factors into their core lending and insurance practices.