Equity veteran Richard Pease has softened his overtly bearish stance on the European banking sector and added two positions to his largest fund.
However, Pease, who is Citywire + rated, stressed he has been very selective in adding the new stocks.
Speaking in an investor update, Pease said he had added Swiss group UBS and Danish firm Nordea to his £1.15 billion (€1.41 billion) Henderson European Special Situations fund.
In the UK-domiciled fund, which is available for sale in a number of European markets, Pease had largely avoided financials due to concerns over the speed of recovery in this sector.
‘We are less inclined to play some of the banks because they have recovered so sharply,’ said Pease.
‘Particularly given that things are still pretty uncertain politically, and also from a regulatory point of view, we are being pretty specific and, apart from those two companies, we have not been tempted.’
The London-based manager said these two financial companies had attracted him as they were the ones that have shown both strong cash generation potential and dividend-paying potential.
Commenting on his newest positions, Pease said: ‘We have had Nordea since late last year. It is a straightforward story, a Scandinavian bank which is having its pace dictated by their larger shareholder Sampo, which we also own.’
‘The Nordea board has been very much changed, very much to the better and it is becoming a cash generative, dividend-paying business, yielding six per cent plus. We are very happy with that. It is a very straightforward story.’
Nordea currently makes up 3.5% of the fund and is the third largest single bet in the UK-domiciled fund, while representing 3.6% of the Luxembourg-domiciled Henderson HF European Growth fund.
Pease said the addition of UBS reflected a wider change ongoing at the Swiss banking group. ‘We think you are paying about 10x earnings and you are essentially getting a wealth management business,’ he said.
‘It will be a very cash generative business and also pay a good dividend, albeit not this year but in 2015 or 2016. If you are paying 10x for that kind of thing and look through all the numbers, fund management tends to be on 15x, so there is upside there.’Over the last five years, Pease has returned 143.7% to the end of March 2014 across all his funds while the average manager in the Europe ex-UK equity sector has posted returns of 125%.