Buy, hold or sell: Henderson Global Financials

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Henderson Global Financials is run by the Henderson global equities team, a group of six investment professionals with more than 103 years of investment experience between them, the fund factsheet announces. Ian Tabberer is one of the newer members of the team, having joined Henderson from Baillie Gifford last year.

The fund has a global remit, so it has a small exposure to UK financial companies. As at 30 September, half of the portfolio was invested in the US, 8 per cent in Brazil and 5.9 per cent in Canada - the top three regional exposures.

It was a first-quartile performer in the IA specialist sector in 2012 and 2013, but slipped into the second quartile in the following two years. In the year to date, it has underperformed the sector, however. Over five years, it has returned 98.3 per cent.

BUY: ITAU UNIBANCO (NYSE:ITUB)

Around 5-6 per cent of the equity capital of Henderson Global Financials is held in Brazilian bank Itau Unibanco, making it the fund's largest holding.

This is not immediately obvious, however, as the holding is split between the bank's American Depositary receipts listed on the New York Stock Exchange and its preference shares listed on the Bovespa.

henderson-global-financials-versus-benchmarkThe fund has been buying in over the past six months at around $7-8 (£5.70-6.50), on a dividend yield of just over 4 per cent, and Tabberer says the team is very excited about the prospects in the Brazilian banking market, particularly for banks in the private sector.

He explains that private sector banks have given up a lot of market share to public sector banks recently, but he expects an improvement in the country's economy over the next couple of years, helped by greater clarity in Brazil's political situation.

This, he says, will allow Brazilian private sector banks such as Itau to regain market share.

Furthermore, Itau has been generating returns on equity of around 20 per cent in the trough of Brazil's economic cycle, and the team sees it as 'very attractively valued'.

HOLD: FAIRFAX FINANCIAL HOLDINGS (TSE:FFH)

Canadian insurer Fairfax Financial is a firm Tabberer knows well, having invested in it before he joined Henderson. The Global Financials fund bought into the company at a price of C$650 (£404) at the end of 2015, when Tabberer came to Henderson.

'We see it as a long-term winner in the global insurance space,' the manager explains. The share price has since climbed to $727.

The firm is one of the best compounders of book value growth in the insurance industry. In this sense, Tabberer says, it's very similar to Warren Buffett's Berkshire Hathaway and insurance giant Markel.

He adds: 'We think there's significant hidden value in this business, and the management team has been a very good long-term compounder of book value.

'One reason the stock is owned is because it's the kind of ship that will survive many a storm, and it has done so for a number of decades. In many ways this is a through-the-cycle holding that we would look to add to on any weakness.'

SELL: LLOYDS BANKING GROUP (LON:LLOY)

The fund has only 3 per cent of its assets in the UK. There are just two London-listed firms, Aberdeen Asset Management and Standard Chartered, in the portfolio.

itau-unibanco-versus-lloyds-banking-groupIt sold its holding in Lloyds Banking Group at the end of the first quarter of 2016 for around 65p a share. Since then the share price has fallen on sterling weakness to trade at 51p at the time of writing.

Lloyds was bought by Henderson Global Financials for 35p in 2012, so the capital value of the holding almost doubled over those four years.

On the decision to sell the stock, Tabberer says: 'The risk-reward balance didn't look very attractive, given the long-term outlook for Lloyds' net interest margin [the difference between the interest income earned and the amount of interest paid out to customers].'

He says interest rates are unlikely to go much higher over the long term, and the fund is positioned accordingly. He adds: 'We felt [Lloyds'] long-term inability to withstand the lower interest rate environment wasn't factored into the current valuation.'


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