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RLAM’s Kevin Lilley closes underweight position in European Financial stocks

Having been underweight the Financial sector all year, both in banks and insurers, Kevin Lilley, manager of the Royal London European Growth Trust, moved to a neutral weighting in both areas yesterday.

According to Lilley:

"We have seen signs of capitulation by investors in recent days with stock prices falling aggressively. Long only fund managers are underweight these sectors and hedge funds are short. From here I feel that the marginal trade will be for both parties to cover their positions as a result of recent government actions.

We have seen the disappearance of Bear Stearns and Lehman Bros. Fannie Mae, Freddie Mac and AIG have received government support. Central banks globally have been injecting liquidity into the markets in a co-ordinated way. HBOS has been absorbed into Lloyds TSB and the belief is that both Morgan Stanley and Goldman Sachs could be in trouble.

This has created a level of fear and hysteria that I have never witnessed in the last three decades that I have been following stock markets. The pressure on the US government / Federal Reserve is such that they may consider creating a new version of the Resolution Trust to absorb the assets of failed financial institutions, in order to draw a line in the sand. This could spark a sharp reversal in the share prices of financials.

I still feel that the longer term implications of the credit crunch will lead to far lower returns for banks than analysts are forecasting, but in the shorter term I feel that the market may have moved too far and that the pain trade will be upwards."

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For further information:

RLAM
Stephen Watchorn
Tel: 020 7506 6582
Stephen.watchorn@rlam.co.uk

Quill Communications
Jo Stonier
Tel: 020 7758 2230
Jo.s@quillcommunicate.com

 

Editor's notes

Royal London Asset Management (RLAM)

was established in 1988 and specialises in providing investment management solutions for both the Royal London Group and a range of external institutions. These include FTSE 250 companies, local authorities, universities, charities, wealth managers, financial advisers and private clients. RLAM manages over £30bn of assets, employing more than 50 experienced investment professionals in our London based office.

Royal London Group

, is a specialist financial service provider. Its businesses focus on those sectors of the market which value quality propositions, operating through a number of brands:

  • Scottish Life – UK pensions market
  • Bright Grey – UK protection market
  • Scottish Provident – UK protection market
  • Phoenix Life Assurance Limited – provides life and pensions products to Abbey's national branch network
  • Scottish Life International – offshore investment markets
  • Scottish Provident International – offshore investment markets
  • RLAM – fund management
  • RLAS – life and pensions administration
  • Fundsdirect / Ascentric – funds supermarket; Wrap platform

Royal London is the largest mutual life and pensions company in the UK with Group funds under management of £32.4 billion. Group businesses serve around three million customers and employ 2,750 people. Figures quoted are as at 30 June 2008, prior to the acquisition of Scottish Provident's new business capabilities (in respect of individual life protection business) and of Phoenix Life Assurance Limited.