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RBS setback hits UK funds

04 November 2011

A number of high-profile managers piled into the battered high-street bank in the aftermath of the global financial crisis, but the share price has failed to bounce in the manner many expected.

By Joshua Ausden,

Reporter

Poorer-than-expected earnings figures have dealt a considerable blow to the recovery of RBS, according to The Share Centre’s Graham Spooner, who recommends investors cut their losses and sell the bank immediately.

"It was no surprise to hear that RBS expects its recovery to take longer as the eurozone debt crisis continues," said the investment research analyst.

"This, along with a weakened UK economy, has seen a reduction in the bank’s profitability and the announcement of mixed third-quarter figures. As a result, RBS doesn’t expect to meet its returns targets set for 2013 either."

Many investors who hoped to take advantage of cheap valuations in the banking sector piled into RBS after share prices began to plummet back in 2007. However, things went from bad to worse for the bank in 2008, and the share price has failed to bounce since the lows of early 2009.

Performance of stock over 10-yrs

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Source: FE Analytics

FE Alpha Manager Ian McVeigh’s £711m Jupiter Growth fund is one of 26 vehicles in the unit trust and OEIC universe that includes the bank in its top-10 holdings. McVeigh, who has a 3.67 per cent stake in RBS, also holds Lloyds, Barclays and HSBC in his top-10.

This high exposure to banks has hit the manager particularly hard in recent months; according to FE Analytics, the Jupiter Growth fund has lost 9.9 per cent so far in 2011, underperforming its FTSE All Share benchmark by 6.11 per cent.

Hak Salih’s £306m Santander Equity Income fund has the biggest position in the bank. RBS is the manager’s fourth largest holding, with a 5.16 per cent weighting.

Although manager Sanjeev Shah has cut back his exposure in recent months, the Fidelity Special Situations fund still has a 1.7 per cent weighting to the bank.

Spooner expects a tough time for all UK banks in the foreseeable future, but says the outlook for RBS is particularly bleak.

"Despite analysts saying some figures beat expectations, we believe the outlook remains uncertain for RBS and don’t see any reason to invest in the present climate," he said.

"Investing in the banking sector is currently not for the faint-hearted and we would suggest new investors steer clear of RBS. However, those wishing to gain exposure may want to look at Barclays or Standard Chatered instead."

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.