Powered by MOMENTUM MEDIA
realestatebusiness logo

Subscribe to our newsletter

Banks are now a ‘buy’, says fund manager

With the share prices of the major banks down close to 25 per cent from their highs in April 2015, one fund manager says the market is underestimating the strength of the big four.

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.”

Advertisement
Advertisement

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]

Banks are now a ‘buy’, says fund manager
var typesArray = { desktop: [4417], tablet: [4417], mobile: [4417], }; var zoneArray = [256196]; var zoneDivId = '#momentum-native2-zoneunit'; changePlacements(true, zoneDivId, typesArray, zoneArray, '', 'native-2-in-article');
>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]

Banks are now a ‘buy’, says fund manager
mortgagebusiness

Latest News

Islamic Bank Australia has been granted a restricted banking licence from APRA. ...

In a move partly focused on guiding its approach towards diversity and inclusion, the non-bank has appointed Dr Jane Watts to its board. ...

The non-major bank has taken another leap towards the digital space, integrating its core platform to the cloud. ...

VIEW ALL

Join Australia's most informed brokers

Do you know which lenders are providing brokers and their customers with the best service?

Use this monthly data to make informed decisions about which lenders to use. Simply contribute to the survey and we'll send you the results directly to your inbox - completely free!

Do you think the new NSW property tax will help or hinder first home buyers?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.