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Downgrades don't put Schroders off banks

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Schroders fund manager Nick Kirrage is sticking with UK banking stocks in the firm’s £733.7m income maximiser fund despite Moody’s downgrades last week.

Kirrage, who manages the income component of the income maximiser fund, says the fund has a 2 to 3 per cent holding in each bank.

He says: “We own RBS, Lloyds and Barclays. At half book value, we are compensated for the risks of exposure to UK banks. Lloyds is a very cheap stock. We think we are going to get strong dividend growth from Lloyds because, historically, banks pay half their profits as dividend. We can expect a yield of 10 per cent.” Kirrage says he expects banking stocks will return to the dividend register in the next three years.

Odey Asset Management absolute return fund manager James Hanbury also sees value in UK banks.

He says: “We have increased our exposure to Lloyds convertibles. They give a 14 per cent yield to redemption and a 10 per cent running yield and we think the risk return on those is extremely attractive. We are close to 10 per cent in those, up from 7 per cent in June.”

On Thursday, Fitch Ratings downgraded Lloyds Banking Group and Royal Bank of Scotland to “A” after revising its support rating floors for “systemically important UK banks”.

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