The FTSE 100 bank, which the majority of investors would not touch with a barge pole in the aftermath of the financial crisis, has rallied more than 140 per cent in the last year, and is now in positive territory over a three-year period.
Its share price is down 46.62 per cent over a five-year period and 29.1 per cent over a 10-year period, but this is a marked improvement on recent performance.
Performance of stock vs indices over 5yrs
Source: FE Analytics
Yesterday, the stock rallied more than 8 per cent after reporting its first profitable six-month period in three years. There are also reports that it will start paying a dividend again, which gave the share price an added boost.
Performance of stock and indices over 1yr
Source: FE Analytics
In total, 77 funds hold Lloyds in their top-10, with assets under management (AUM) totalling more than £29bn.
Under-fire FE Alpha Manager Dobell, who runs the £7bn M&G Recovery fund, is among the largest shareholders of Lloyds, with a 2.3 per cent weighting to the bank.
Shah’s Fidelity Special Situations portfolio, formerly headed up by industry legend Anthony Bolton, has 7.5 per cent of its assets invested in Lloyds. McVeigh has 8.22 per cent of his Jupiter UK Growth fund in the stock, while Legget’s Standard Life UK Equity Unconstrained fund has a 3.3 per cent weighting.
None have as much as Steve Davies’ £110m Jupiter Undervalued Assets fund though, which has an 8.61 per cent weighting. This makes it the largest position in the portfolio by almost 3 percentage points.
Davies continues to be optimistic about the future for Lloyds, indicating that he has no plans to sell it in spite of its stellar run in recent months.
"We welcome Lloyds’ announcement that it will initiate discussions with the regulator about restarting its dividend payments," he explained.
"In our view, this represents the final stage on its journey back to pre-crisis normality, alongside the gradual sell-down of the Government’s stake in the group. Lloyds remains the largest holding in both the Jupiter UK Growth fund and the Jupiter Undervalued Assets fund and we remain positive about its prospects."
"With the UK and Irish economies continuing to improve, we see substantial upside for UK banks from here, even after the sharp rally that has taken place over the last 18 months. Lloyds’ results seem in my view to confirm the strong momentum in its core business."
Many managers anticipated Lloyds’ move to start paying a dividend again, including Nick Kirrage, who runs the Schroder Income and Schroder Recovery funds alongside Kevin Murphy.
He told FE Trustnet that a re-introduction of a dividend will see a swathe of equity income fund managers snap up the stock, adding further support to the share price.
He and Phoenix Asset Management’s Gary Channon both tipped it as a stock investors could buy, hold and forget about, in an article earlier this year.
Performance has not been as positive for Royal Bank of Scotland and Barclays of late, however. RBS’s share price is down more than 6 per cent today in spite of it also returning to profit in the first six months of the year.
Barclays has also had a difficult week, thanks to reports that it needs to raise more capital than was originally anticipated.
However, Davies continues to back the bank and it remains the second-largest holding in his fund.
"Barclays too has increased its dividend payout ratio from 30 per cent to 40 to 50 per cent, with the latter kicking in from 2014 rather than the previous aim of 2015," he explained.
"Barclays remains a self-help story: the strategic plan announced in February focused on cost savings and this opportunity needs to be pursued with increased vigour. On top of this, shareholders will expect to see a forensic review and deleveraging of the balance sheet now that rules on leverage ratios – required capital as a proportion of total assets – have become clearer."
Mark Holman (pictured), chief investment officer of TwentyFour Asset Management, also says that Lloyds' debt is attractively valued.
"It is no surprise that all the headlines are focused on the equity and potential government exit strategies being pushed forward," he explained. "While this makes perfect sense as it is an improving story, we wanted to highlight once again the value in some of the bonds."
"The Lloyds ECNs [enhanced capital notes] have long been some of our favourite bond issues. These bonds are very widely held, by both institutional and retail investors. Yields vary between 6 per cent at the low end, up to over 9 per cent for the high coupon, less liquid issues."
"Most of the bonds mature between 2019 and 2024, but there are a few longer-dated ones too. Comparing these with standard lower tier 2 bonds from Lloyds, the ECNs pay at least 250 basis points more, which is why we feel investors are being handsomely compensated for the extra structural features of the ECN."
"Bonds did sell off on the back of the Fed’s tapering talk but are steadily making up lost ground now, and realistically they look attractive no matter how much the Fed tapers."
"So while you read the numerous press articles about the upcoming Lloyds share sale, don’t forget about the bonds, which should also trade up on the back of this strong news flow," he finished.
