Bank results season – what do investors need to look out for?

29th July 2015


One in seven UK fund managers hold no banks a survey by Hargreaves Lansdown shows.

Active UK managers fund managers are 4% underweight banks, though the 30% which hold RBS are collectively overweight Royal Bank of Scotland

HSBC is the most underweighted of the big five banks but that may be due to the bank’s size within the FTSE as much as any misgiving about the stock itself.

Laith Khalaf, senior analyst, says: “Banks play a pivotal role in the UK economy, but they also form a large portion of the pensions and investments of the UK public. Pretty much everyone in the UK therefore has some stake in a healthy banking sector, not least with billions of pounds of taxpayer funds still tied up in Lloyds and Royal Bank of Scotland.”

UK fund managers are significantly underweight the banking sector. While the banks make up 11% of the stock market, the average UK fund manager holds just 7% in these stocks. And one in seven UK managers hold no exposure to banks at all.

Khalaf adds: “The current underweight position of active managers points to a negative view of banks. This is understandable given the sector is still in the process of recuperating from the financial crisis. Many managers are no doubt once bitten, twice shy, and are probably wary of further regulatory fines.

“However the fact that UK funds are under-invested in the banking sector suggests there is potential for these stocks to appreciate if there is a broad turn in sentiment amongst professional investment managers. If active managers decided to halve their underweight position in banks, that would create around £2.5bn of buying demand; if they were to take a neutral position within their funds, the effect would be double.”

Bank weightings in details

HSBC is the most underweighted stock amongst fund managers. Barclays, Lloyds and Standard Chartered all share similar levels of investment.

Given HSBC makes up over 5% of the UK stock market there is a structural reason for funds to be underweight – many managers don’t like holding more than 5% in any one stock.

UK managers are in aggregate overweight Royal Bank of Scotland. However less than one in three managers actually hold this stock, and the average weighting of those that do is 1.4%. But because the bank makes up just 0.3% of the UK stock market, this is enough to propel it to an overweight position amongst managers as a whole.

% of managers who hold shares

Average weighting compared to index*










Royal Bank of Scotland



Standard Chartered



* includes managers with nil holdings

Fund managers who like banks

Some managers have some pretty significant positions in banks in their top 10 holdings and HL

Jupiter UK Growth holds 19% in UK banks, of which the biggest holdings are 7.5% in Lloyds and 6.2% in Barclays. Manager Steve Davies is a contrarian investor with an eye for turnaround stocks, which has led him to the banking sector. This fund sits on our Wealth 150 list of favourite funds.

Majedie UK Equity holds 20% in UK banks, of which the biggest holdings are 6.1% in HSBC, 3.8% in Barclays and 2.8% in Royal Bank of Scotland. The fund blends together the ideas of four managers into one portfolio and has built up an impressive track record since launch. The fund also sits on our Wealth 150 list of favourite funds.

Standard Life UK Equity Recovery has 21% in banks; its 4 biggest holdings are 6% in Barclays, 5.7% in Lloyds, 4.9% in Royal Bank of Scotland and 4.8% in HSBC. As the name suggests the fund looks for companies that are in a state of recovery, undoubtedly a tag that applies to the UK banks.

Hargreaves Lansdown’s view of what to look out for in bank results season

30 July: RBS – inching toward privatisation. This is the first chance for the bank to talk to investors since the general election, and any thoughts they share on a possible route toward privatisation will be eagerly seized upon. Beyond that, the market will be looking for progress winding down the ‘bad bank’, or Capital Resolution division, and will be hoping that the costs of shrinking the investment banking operations are no worse than previously set out.

31 July: Lloyds – all eyes on the dividend. Probably the most eagerly awaited number from this set of banking results will be the interim dividend from Lloyds. This will be the second dividend paid by the bank since the financial crisis, and will be seen as a sign of things to come. Analyst consensus suggests for this entire year Lloyds will pay a dividend of around 2.85p, which would mean a yield of just over 3% based on the current share price. How far towards that number company goes at the interim stage will give a pretty clear pointer for the full year total.

3 August: HSBC, staying home for now. For HSBC there should be few surprises, because the bank recently gave a strategic update. Both HSBC and Standard Chartered will have been delighted by the Chancellor’s recent volte face over the structure of the banking levy. This now only applies to UK bank assets; previously all of their operations around the world were liable, leading to mutters about decamping from the UK and setting up headquarters in Hong Kong or Singapore.

5 August: Standard Chartered – new brooms. These interim results are the first chance for new CEO, Bill Winters, to make his mark. Investors should watch for what Standard Chartered has to say about the dividend. The bank has previously expressed a desire to boost capital ratios, and new chief executives have a habit of acting quickly to boost retained capital by cutting dividends.

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