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Uday Cheruvu, portfolio manager at PM Capital, said the firm was avoiding the likes of Westpac and NAB when their share prices were “nudging $40” at the end of the 2014-15 financial year.
“Our view on financial markets, both domestically and internationally, is ‘more of the same’ for the foreseeable future – that is, low growth, low yield and high volatility,” Mr Cheruvu said.
“In this environment, solid businesses offering high single-digit net returns are attractive additions to a portfolio and the major Australian banks currently meet this criteria.
“With the cash rate at 1.75 per cent, businesses that can offer predictable returns of around 9 per cent after franking credits are taken into account are attractive propositions in our view.”
Mr Cheruvu said the current prices of the big bank shares factor in another round of APRA-mandated capital raising, although PM Capital does not think the prudential regulator will make another move on that front until late 2018.
“We are very comfortable owning them at current prices and hold ANZ, Westpac, NAB and investment bank Macquarie Bank. The former two each comprise nearly 10 per cent of the Australian Companies Fund whilst Macquarie accounts for around 7.5 per cent,” he said.
“There is no doubt the new CEO of the ANZ Bank has inherited some challenges, particularly relating to Asian exposure, but we are impressed by his approach to date and believe the market has marked the business down more than warranted.”
[Related: Aussie fund manager bets big on P2P lending]