Guy De Blonay has doubled his exposure to special situations companies from 5 per cent to about 10 per cent over July and August after he decided to add risk to his £443m Jupiter Financials Opportunities fund.
De Blonay says the decision to buy more of these types of stocks in the portfolio is the result of perceived positive progress in the eurozone crisis.
He says: “Most of these special situations are European or eurozone financials. Previous to Draghi’s comments, they were trading at attractive valuations but the environment did not convince us that there was any concrete policy that could push these valuations going up.”
De Blonay has been buying special situations such as the French bank BNP Paribas, and investment banks, which he says were very oversold, such as JP Morgan Chase, Credit Suisse and Barclays.
He says: “We have bought Barclays on the back of the Libor case. Barclays is in our top 10 now. The recovery has been quite pleasing so far.”
“When Draghi started to explicitly give an idea this summer that he will do everything in his power to stabilise sovereign bonds markets with potentially an unlimited buying of sovereign bonds, especially within the countries that are in difficulties. It gave the idea that bond yields could be capped, which would be supportive of the attractive valuations that we can find in the eurozone stocks today,” he says
He says the rally in financials has gained momentum because investors have been buying into a sector in which on a global basis they are very underweight.
“Many financials have an indirect link to Europe. So as we have had some sort of policy put in place, global financials have rallied as well,” he says.
To be more convinced by his increase in the allocation to the special situations bracket, De Blonay says events in September are key.
“The main question is how sustainable is the improvement in financials,” he says. “Such events like the ECB meeting, where Draghi has to be more specific about how he is to tackle the sovereign bond market, will make things clearer.”