“We’ve been buying European banks, probably the most troubled sector globally in the last 10 years,” said Brown, who is in charge of representing the Henderson European suite of products to clients. He spoke at a media briefing in Hong Kong Kong last week.
“If you look at the average active manager in Europe, financials are still the biggest underweight sector, so they are still unloved and under-owned by the investing community,” he said.
Over a three-year period, European banking stocks have underperformed the broader European equity market, according to data from FE Analytics. The sector underperformed sharply in 2016, but has been on an uptrend since July last year.
The sector also continues to contract as customers increasingly embrace electronic payments and mobile banking. Last year, around 9,100 branches closed, according to a report from the European Banking Federation. This brings the number of branches to around 189,270, which compares to 237,701 in 2008.
Valuation concern
Investors have been concerned that European banks have expensive valuations, according to Brown.
However, he said banks are trading at a price-to-book ratio of below 1x, which compares to 1.3x-1.4x in 2015, he said.
Investors in European banks are also getting a dividend yield between 4% and 5%. “We’re still in a yield-hungry world, and that is quite attractive.”
Investors should also not be worried about European bank’s Tier 1 capital ratio, which is a measure of their financial strength.
“The capital buffers are pretty much close to double that of what we saw in 2007,” Brown said, adding that capital ratios in Europe are not different from those in the US now.
“We had the US regulator in the summer tell the [US] banking system it is already overcapitalised.”
Earnings are also positive for banks. Brown said that 28 of the 34 biggest banks within Europe have beat expectations during the last quarter.
The three-year performance of one of Janus Henderson’s European equity funds, the Henderson Horizon Euroland Fund managed by Nick Sheridan, versus its benchmark, according to FE data. The financial sector accounts for around 21.6% of the fund, according to its fund factsheet.
All fund and benchmark NAVs have been converted to US dollars for comparison purposes.
