Royal London European Growth Trust moves overweight banks

After being aggressively underweight the banking sector for much of the year, culminating in a 7% underweight position on 18th September, Kevin Lilley, Royal London’s European Growth Trust manager has reversed his strategy and moved to overweight the sector on 26th September.

A natural contrarian, RLAM’s Mr Lilley said: “We have recently seen a 50 basis point cut US interest rates and an improvement in credit conditions. Libor rates have fallen, M&A activity is picking up and the IPO new issues have started up again. When I look at the fund management surveys, I see that the banking sector is the most aggressively underweighted sector in every region of the world, which means funds are unlikely to go further underweight, but more likely to close some or all of their underweight positions into an improving situation.

“A lot of bad news has been absorbed by the market over the past few weeks, so a lot of negativity is priced in. As a result of these factors I have decided to reverse my recent strategy and move to overweight the banking sector, from being very underweight all year. Whilst there may be an individual bank blow-up I have bought a selection of stocks to spread the risk, as I think the sector may be squeezed higher from here.”

The Royal London Growth Trust has been in the top quartile of its sector (Europe ex UK) since moving to a best ideas approach in December 06.